for official use only report no: 48705-zr - world bank · 2009. 6. 5. · document of the world...

Document o f The World Bank

FOR OFFICIAL USE ONLY

Report No: 48705-ZR

PROJECT PAPER

ON A

PROPOSED ADDITIONAL FINANCING GRANT

IN THE AMOUNT OF SDR 116.7 MILLION (US%180.62 MILLION EQUIVALENT)

TO

THE DEMOCRATIC REPUBLIC OF CONGO

FOR THE

SOUTHERN AFRICAN POWER MARKET PROJECT (SAPMP) -APL1

June 5,2009

Energy Group Sustainable Development Department Africa Region

his document has a restricted distribution and may be used by recipients only in the performance o f eir official duties. I t s contents may not otherwise be disclosed without World Bank authorization.

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AfDB APL . BCECO CAB CAS CEC CP

CURRENCY EQUIVALENTS

African Development Bank Adaptable Program Loan Bureau Central de Coordination Central African Backbone Country Assistance Strategy Copperbelt Energy Corporation Comnensation Plan

(Exchange Rate Effective May 3 1,2009)

Fc775 = US$1 US$1.54850 = SDRl

Currency Unit = Franc Congolais (Fc)

DRC EIB ERR ESIA GDP

FISCAL YEAR January 1 - December 3 1

Democratic Republic o f Congo European Investment Bank Economic Rate o f Return Environmental and Social Impacts Assessment Gross Domestic Product

ABBREVIATIONS AND ACRONYMS

I AC I Alternating Current I


TA UGP WAFS WBG

Technical Assistance Unit6 de Gestion du Projet (Project Implementing Unit) West Africa Festoon Submarine Cable System World Bank Grout,

I WTP I Willingness-To-Pay

Vice President: Obiageli Ezekwesili Country Directors:

Sector Manager: Subramaniam V. Iyer Task Team Leader: Samuel O’Brien-Kumi

Richard Scobey, Marie Franqoise Marie-Nelly

This document has a restricted distribution and may be used by recipients only in the performance o f their official duties. Its contents may not otherwise be disclosed without World Bank authorization.

DEMOCRATIC REPUBLIC OF CONGO Southern African Power Market Project (SAPMP) - APLl

Additional Financing Project Paper Data Sheet

Source Borrower/SNEL IBRDDDA EIB Total without CEC Financinn

Market Project (SAPMP)-APL 1 Marie Franqoise Marie-Nelly

Responsible agency: Societe Nationale d’Electricit6 (SNEL)

Current closing date: December 3 1,2009

Local Foreign Total 6.86 0 6.86

19.42 161.20 180.62 2.70 44.32 47.02 28.98 205.52 234.50

date: December 31,2012 Does the project require any exceptions from Bank policies? (Exception with respect to OP13.20 as Project i s rated as Marginally Unsatisfactory). Have these been approved by Bank management? I s approval for any policy exception sought from the Board?

Yes (OP 13.20)

Yes No

Revised project development objectivedoutcomes. Previous Project Development Objectives: To develop an efficient regional power market in the Southern Afr ican Development Community to create conditions for accelerated investments in the power sector, increase competition and foster regional economic integration. Revised Project Development Objective: To facilitate further development o f an efficient power market in the Southern Af i ican Development Community. Does the scaled-up project trigger any new safeguard policies? N o

[ ] Loan [ ] Credit [X ] Grant For Loans/Credits/Grants:

For Additional Financing

Total Bank financing (US$m): 180.62

Additional Regional Activitv Not Co-financed bv I D A (US$m)

I . I 1 . I11 . IV . V . V I .

DEMOCRATIC REPUBLIC OF CONGO Southern African Power Market Project (SAPMP)-APL1

Additional Financing

TABLE OF CONTENTS

Introduction ....................................................................................................................... 1

Background. Rationale for Additional Financing and Consistency with CAS ............ 3

Proposed Changes ............................................................................................................ 18

Expected Outcomes ......................................................................................................... 24

Benefits and R i s k s ............................................................................................................ 24

Financial Terms and Conditions for the Additional Financing .................................. 32

Annex 1 : DRC Electricity Sector Rehabilitation and Development Strategy. and Alternatives Considered for the Rehabilitation o f the Inga-Zambia Transmission Assets ............................... -35

Annex 2: Description o f the Southern African Power Market Program ....................................... 42

Annex 3: Detailed Project Description ......................................................................................... 47

Annex 4: Additional Details on the Telecommunication Component ......................................... 53

Annex 5 : Description o f the Regional and Domestic Power Markets Development Project ....... -58

Annex 6: Summary Status o f the Main Contracts ......................................................................... 63

Annex 7: Summary o f Implementation Schedule o f the Main Contracts ...................................... 65

Annex 8: Revised Project Cost Estimate by Component .............................................................. 66

Annex 9: Comparison o f Revised Cost Estimate and Initial Estimate .......................................... 67

Annex 10: Project Financing by Contract and Financing Agency ................................................ 68

Annex 1 1 : Organizational Arrangements for Supervision o f Implementation .............................. 69

Annex 12: Arrangements to Ensure Sustainability o f Project Output ........................................... 72

Annex 13: Results Framework and Monitoring Arrangements ..................................................... 75

Annex 14: Comparison o f the Initial and Restated Indicators ....................................................... 81

Annex 15: Economic Re-Evaluation ............................................................................................. 83

Annex 16: Financial Management, Audit and Disbursement Arrangements ............................... -99

Annex 17: Estimated Revised Disbursements o f total IDA Financing ..... .. . . . . . . . . . . . . . . . . . . . . ........ . . . . l o 1

Annex 18: Procurement ............................................................................................................... 102

MAPS ......................................................................................................... ................................. 105

DEMOCRATIC REPUBLIC OF CONGO Southern African Power Market Project (SAPMP) - APLl


I. Introduction

1. This Project Paper seeks the approval o f the Executive Directors to provide an additional grant in the amount o f US$180.62 million equivalent to the Democratic Republic o f Congo (DRC) for the DRC’s component o f the Southern African Power Market Project (‘SAPMP’, P069258, Credit 383 1-DRC)-APL1, approved in November 2003, and for a formal restructuring necessary to complete the implementation o f the Project. The Project Paper also seeks a 3-year extension o f the Credit Closing Date from December 3 1 , 2009 to December 3 1 , 201 2.

2. The Project Paper (PP) proposes restructuring o f the project to ensure that the objectives are met and are sustained. This comprises modification o f the project’s development objective (PDO), revisions to performance indicators and their targets to improve implementation monitoring (Annex 13); and modified project activities. The re-stated PDO which provides greater clarity with respect to the Project’s achievable goals is to facilitate further development of an eflcient power market in the Southern African Development Community (SADC). This would arise from the:

Increased exports o f power and resulting competition in the SADC power market. The project would restore the power transfer capability o f the main high voltage transmission artery from the Inga hydropower stations in DRC to the border with Zambia and enable the transfer o f 500 M W o f firm and reliable hydro-based electricity into the SAPP. This will contribute to reduction in the economic cost o f electricity in the SAPP, and as an alternative supply source for the SAPP, would thereby enhance competition and trading in the SAPP.

Significant real-time technical and commercial information would be available to the power-pool members. The provision o f the modern optical fiber telecommunication system with the associated data acquisition and management systems to be installed under the project wi l l enable market participants to enhance efficiency in and the operations o f the short-term energy market (STEM). The STEM i s one o f the two main electricity trading mechanisms employed in the SAPP, and i s based on day-ahead short-term contracts for supply o f energy in hourly periods (Annex 2). The SAPP market will benefit from increased transparency and efficiency, as well as the speed and volume o f transactions.

3. objectives are:

The modified and additional project activities in support o f the revised development

installation o f a new state-of-the art optical fiber telecommunication system for power operations and other national and regional telecommunication requirements. I t has been determined that the earlier project alternative o f repairs to the existing system are not technically and economically appropriate; replacement o f control systems o f the converterhnverter stations instead o f repair o f the existing dilapidated and technologically obsolete systems;

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upgrade o f the System Control and Data Acquisition (SCADA) facility at Likasi Transmission Control Center; increased emphasis on the implementation o f the environmental and social mitigation measures; enhanced support for community development comprising: construction o f schools, clinics, water supply and systems, supply o f basic medicine, electrification, and an HIV/AIDS awareness campaign for communities along the transmission line corridor and expanded technical assistance activities to establish: (a) a 5 year operation and maintenance contract for the power transmission assets, including training o f the power utility staff to take over thereafter; (b) a private operator to manage the commercialization o f excess telecommunication capacity, as well as i t s operation and maintenance; and (c) an entity with international experience such as a non-Governmental Organization @GO) to provide additional oversight for the implementation o f the Resettlement Action and Compensation Plans.

4. The Project i s the f i rst phase (APL1) o f a three-phase horizontal Adaptable Program Loan (APL) o f the Southern African Power Market Program (the Program) on which the Bank and the Southern African Development Community (SADC) reached an understanding in 2002 as the basis o f development o f the integrated Southern African Power Pool (SAPP). The Project invests in a key infrastructure for the development o f regional energy trade with hydropower from Inga hydropower complex in DRC as the anchor supply. Associated developments to harness the Inga resource and promote energy access for DRC include, inter alia, investments in the rehabilitation o f the existing Inga 1 and 2 hydropower facilities, development o f the new Inga 3 project, reform o f the DRC power sector and i t s utility, SociCtC Nationale d’ElectricitC (SNEL).

5. There are a suite o f regional and national energy investment projects in DRC, variously supported by the Bank, the African Development Bank (AfDB), the European Investment Bank (EIB) and other donors to address the required development needs. The has recently taken decisions that weave these different projects into a unified strategy to address the objectives o f regional power trade, national energy access and security o f supply.

6. This Project’s specific focus i s to rehabilitate and reinforce an existing 2,300 kilometer high voltage power transmission l ine from the Inga hydropower stations to Kasumbalesa at the border with Zambia, which i s the backbone o f the DRC power transmission system as well as the main artery for conveying power to the SAPP through Zambia (see attached maps). This high voltage transmission system i s currently in poor operating condition and performs far below i t s installed capacity and reliability due to age and years o f persistent inadequate maintenance. The Project also supports an additional high voltage transmission l ine to the border with Zambia, on the existing alignment. In Zambia, activity complementing the Project should result in reinforcement o f the system’s power transfer capability and improvement o f i ts reliability within DRC and Zambia and into the SAPP. Furthermore, a modern optical fiber telecommunication system i s to be installed in tandem with the power l ines to enhance SNEL’s power operations and electricity trade with the SAPP also the national and regional communication applications as well as interconnection capacity (see attached Map 3).

7. The original operation underlying this Financing Project was approved by the Board in November 2003. It became effective in May 2004. Since i ts approval, the project faced a series o f implementation challenges arising mainly from DRC’s post-conflict country situation, and

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from the technical complexity o f the project itself. As a result o f the fragile conditions following the c iv i l war, it has taken the, GoDRC and SNEL time to develop the requisite institutional capacity and address the project’s procurement activities. Within the Bank, staff transitions and limited supervision budgets posed a major challenge for efficient supervision and monitoring o f implementation. Over the last 18 months though, significant progress has been achieved to the point where major procurement is completed or close to completion. In April 2007 GoDRC requested an additional grant to meet the cost increases faced by the Project and a four year extension o f the Credit Closing Date from December 3 1 , 2007 to December 3 1 , 20 1 1. The Bank granted a one year extension to December 3 1 , 2008. In November 2008 at the request o f GoDRC a second extension to December 3 1 , 2009 was granted, with a further extension to December 3 1 , 20 12 to be considered along with this additional financing package.

8. The proposed additional grant will contribute to meeting the Project’s US$252.5 mi l l ion financing gap. It i s required to complete the original project activities as defined in the Project Appraisal Document (PAD) and the revised activities described in p 3 above. The European Investment Bank (EIB) and SNEL will complete the balance o f the financing. In addition the will support the reinforcement o f the existing interconnector between DRC and the power systems in Zambia, linking DRC to the SAPP.

11. Background, Rationale for Additional Financing and Consistency with CAS

A. Country Context

9. Despite its vast resource wealth, DRC i s one o f the poorest countries in the world. Annual GDP per capita declined from US$380 in 1960 to about US$130 in 2007, four times lower than the average for sub-Saharan Africa. About 75 percent o f the population l ives on less than a dollar a day. The deep poverty i s the result o f conflicts, poor governance, weak policies and insufficient investments. The prolonged conflict particularly left many institutions in shambles were neglected, destroyed or lost, and needed investments were halted or deferred. The electricity sector .in particular has suffered considerable damage and most o f the existing infrastructure is in need o f rehabilitation.

10. Since 2002, however, D R C has experienced important political and economic gains. On the political level, the 2006 general elections (legislative and presidential) took place through a process judged as largely free and fair. Since 2007, a broad coalition has implemented policies following a set o f five priorities underpinning the PRSP (good governance and peace consolidation, consolidation o f macroeconomic stability and growth, access to social services, fight against HIV/AIDS, and promotion o f community dynamics) in order to generate rapid growth and sustained development. As regards economic recovery, adequate monetary and fiscal policies addressed hyperinflation (500 percent in 2000) during 2001-04, and a program was largely during June 2002-March 2006. Although the PRGF program veered o f f track in mid- 2006 during the period preceding the 2006 presidential election, the post-election that took office in early 2007 implemented adequate macroeconomic policies under a Staff-Monitored Program o f the IMF.

1 1. In spite o f the multiple challenges, growth has picked up significantly since 2002. During 2002-08 average annual GDP growth was 6.6 percent, compared to -5.2 percent over 1991-2001, owing to rapid development in the mining, construction and transportation sectors, which al l experienced double digit annual growth rates. Following an export boom in 2007, growth was

expected to accelerate further in 2008. Export volumes increased by about 75 percent in 2007, and rose more than 100 percent in US value terms. Increased activity and revenues in the mining sector gave way to rising private investment (6 percentage points o f GDP in 2007) and stimulated growth in construction and services. As late as September 2008, a sharp acceleration o f GDP growth to 10 percent was projected for 2008, including additional export volume increases o f 23 percent. There were also good prospects for growth continuing at the double-digit level over the medium term. Fiscal policies in 2008 were expected to support monetary policy efforts at containing the associated inflationary pressures by moving from a 1 percent overall deficit in 2007 to an overall fiscal surplus o f 1 percent in 2008. However, these fe l l below expectations. Actual recorded growth in 2008 was only 7 percent, and export volume increased by only 15 percent. Since September 2008 however, DRC’s economic prospects have sharply deteriorated as a consequence o f the changing international environment resulting from the financial crisis. In addition, the country had to face a security and humanitarian crisis in i t s North Kivu province. The rapid collapse o f the mining sector has overwhelmed i ts ability to address the economic consequences without external support.

B. DRC Electricity Sector Rehabilitation and Development Strategy

12. DRC has enormous hydropower potential, in the order o f 100,000 MW, mainly concentrated around the Inga hydro site on the Congo River that could provide about 40,000 MW. Today however, only a total installed power generating capacity o f about 2,100 M W i s in place in the Inga 1 and Inga 2 and other smaller hydropower stations, including those in the Katanga Province, o f which less than half the capacity i s operable. Lack o f sufficient transmission and distribution capacity means that the vast majority o f DRC’s population and i t s economy are under-served. At about 6 percent, household access to electricity services i s now less than the pre-war period level, and particularly low compared to the average o f Sub-Saharan countries access rate o f 24 percent. Frequent and prolonged blackouts are becoming increasingly common throughout the network, including high priority areas. Because o f i t s vast hydropower resource, DRC has however the potential to play a pivotal role in fully meeting not only i t s domestic electricity needs but also the needs o f Southern Africa and o f other regions. Power supplied from DRC can be a critical factor for the development o f a competitive power market in the region, with reliable low-cost and low-carbon power supporting industrial and agricultural competitiveness, private sector investment, and regional growth and development. It also potentially represents an important source o f foreign exchange and foreign direct investment for the country. However, DRC under the current condition o f i t s energy sector i s not able to capitalize on the opportunity o f electricity exports in a region where demand far outstrips supply.

13. The main areas critical to the sustained development o f DRC’s energy potential are sector policies, investment regime, governance and the performance o f the single utility (SNEL). The has started to put in place a set o f pragmatic strategies to address issues, including:

systematic rehabilitation program for existing infrastructure, particularly with respect to the transmission system and the generation assets at the Inga 1 and Inga 2 sites;

improving the policies and governance within the sector, notably in respect o f the transparent and systematic promotion o f private investment; improving the performance o f SNEL by strengthening i t s governance, management and operational capacity; and short term actions in critical areas to improve SNEL’s governance and performance such as enhancing billing, collection, and addressing the weaknesses in the accounting and

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financial management systems. Annex 1 describes the Inga and DRC electricity sector rehabilitation and development strategy.

14. Obiectives. The Poverty Reduction Strategy Paper (PRSP) recognizes the economic and social development constraints imposed by the power sector, and the important role that a well- functioning electricity sector can play in poverty reduction. I t also highlights regional power trade opportunities and their contribution to regional political stability. In i t s June 2008 Electricity Sector Policy and Strategy Paper, the adopted the dual objectives of: (i) increasing access, quality and reliability o f service for the domestic electricity market; and (ii) developing i ts massive hydroelectric resources to generate foreign exchange and strengthen the strategic positioning o f DRC in a regional context. To achieve these objectives, the intends to: (a) reform the sector and SNEL, in particular, to increase efficiency and private sector investment; and (b) increase electrification in urban and rural areas.

15. and AfDB, has gained intensity in the past year.’ It comprises the following elements:

The energy sector policy dialogue between the GoDRC and the Bank, supported by EIB

Rehabilitation and expansion o f the electricity infrastructure to increase production from the existing Inga 1 and Inga 2 hydroelectric plants, and the hydroelectric plants in the Katanga region; securing supply by rehabilitation and expansion o f the Inga- Katanga-Zambia and the Inga-Kinshasa high voltage transmission systems; and rehabilitation and upgrade o f the distribution systems o f Kinshasa and other urban centers.

Development o f a long-term program for rural electrification to be supported by donors and the private sector to increase population access from the current low level o f about 6-percent to the higher levels o f access prevailing in neighboring countries.

0 Development o f a modern policy and regulatory framework for the power sector, including new legislation to promote efficiency, investment and private sector participation and implementation o f sound, transparent processes to partner with the private sector in a manner that provides for technically, economically and financially sound partnerships. An electricity law i s under preparation.

Strengthening the governance and technical capacity within the sector, notably at SNEL, including transforming SNEL into a limited liability company (SARL) as per Presidential Decree o f April 24,2009, and putting SNEL under a five-year management contract with the objectives of: (a) rebuilding SNEL’s commercial, financial and operating practices and systems; (b) improving financial reporting and transparency; (c) reconstituting SNEL operational and technical capacities and; (d) ensuring satisfactory implementation o f the rehabilitation programs. These measures would be similar to arrangements contemplated for the water utility -REGIDESO. The selection o f consultants to complete the existing diagnostic studies and delineate the exact scope o f the management contract and prepare the bidding documents i s underway. Until the start o f the SNEL management contract scheduled for September 2010, immediate

The recent location o f the Bank’s Country Director Kinshasa has contributed significantly to positive momentum.

5 The reform dialogue and related actions are garnering increased political support.

measures will be implemented, with support from a consulting firm under recruitment to improve the commercial performance and financial transparency o f SNEL.

0 Continuing the promotion o f regional power trade through further hydroelectric and transmission development and strengthening DRC’s role as a trading partner and sponsor o f regional development efforts. This includes, in particular, completing the feasibility and engineering work so as to initiate the next stage in Inga development, and accelerating the construction o f medium-sized green-field hydroelectric projects in other parts o f the country.

16. GoDRC, with assistance from the Bank and the IFC, has also recently initiated dialogue with the mining companies to explore Public-Private Partnership (PPP) or Independent Power (IPP) vehicles for rehabilitation and green-field investments. Even though the global financial crisis and the general slowdown in the mining industry have reduced appetite o f the private sector, some companies are showing interest.

17. On the regional scene, the power supply deficit in Southern Afr ica has opened new opportunities for D R C to export power. The market for exports in the region has firmed up significantly in DRC’s favor over the last few years. This is demonstrated by the recent 5-7 year sales agreements finalized with Namibia, Zambia and Botswana, and shorter te rm (one year) sales agreement with Zimbabwe. Negotiations are in progress with South Africa (ESKOM) following the expiration in December 2008 o f the latest sales agreement. The main export destination should continue to be Southern Africa, which will continue to face growing supply deficits and at higher prices in the future. In order to enter into secure, longer term agreements at attractive prices, D R C would need to demonstrate reliable availability o f power in excess o f domestic needs, supported with a capable and reliable transmission system to deliver it into the SAPP. The success o f this Project and o f the PMEDE that supports rehabilitation o f Inga 1 and 2 hydropower stations are, therefore, critical to DRC’s long term regional trade aspirations.

18. An associated Information and Communication Technologies (ICT) strategy to accompany modern power transmission systems i s essential. Broadband telecommunications infrastructure is a critical element in the operation o f modern electric power transmission facilities to ensure reliability, security and cost efficiency, and enhance the speed o f power trade transactions. Load management, control, monitoring, and wheeling o f power over long distances and across multiple regional networks are only made possible by a widely distributed computer system (e.g. SCADA systems2) interconnected by high quality optical fiber telecommunication system. As such, the design o f DRC’s component o f the SAPMP includes Optical Ground Wire fiber cable (OPGW) and the associated electronic communication facilities. Given the nature o f OPGW, there exists an opportunity to install capacity that not only meets SNEL’s minimum modest internal communication requirements, but also build-in excess capacity at a l o w marginal cost. The availability o f excess OPGW capacity along the route o f the SAPMP transmission l ine could be utilized to fill a significant gap in the DRC’s national telecommunications backbone. Thereby a reliable and cost efficient platform for a wide range o f electronic communications services to public and private customers would ensue. Broadband access would promote economic growth and competitiveness, improve the decentralization and effectiveness o f government and enhance c iv i l security, as wel l as access to information for business and public uses. This infrastructure i s by far the least expensive option for DRC to integrate with the

System Control and Data Acquisition. 6

Southern Africa and other regional networks (including the Eastern Africa Regional Communication Infrastructure Program -RCIP), Central Africa Backbone (CAB), and the Western Africa submarine cable system (WAFS)). Many land-locked and east coast countries in the region rely on expensive and limited capacity satellite connections for their communications needs. The excess capacity on the OPGW with i t s l inks to Zambia and on to Zimbabwe, Namibia and South Africa, together with interconnections to other broadband networks offers the prospects for the transformation o f the region by providing access to high capacity and low cost ICT infrastructure.

19. SNEL i s not in the best position to operate and commercialize a world class OPGW telecommunication network since this i s not part o f i t s normal business. SNEL also understands that commercialization under the operation and management o f a qualified private operator as a business venture would provide it with a significant annual revenue stream (e.g. royalties and concession fees). To strengthen the possibility o f effectively utilizing the broadband infrastructure and attract private investors to operate it, the DRC’s ICT sector policy, regulatory, legal and institutional framework, and overall ICT strategy are currently being developed by the with the support o f the Bank under the ongoing Private Sector Development Project and by the ICT Strategy Technical Assistance.

C. PMEDE Project

The Southern African Power Market Program, the SAPMP Project, and the

20. As pointed out in paragraph 15, the implementation o f two investment operations: the SAPMP project, which focuses on transmission rehabilitation, and the PMEDE project for the rehabilitation o f the Inga 1 and 2 hydropower stations, are critical elements for DRC’s successful participation in the regional power market. These operations and the inter-linkages are described below.

The SAPMP Program

21. The Bank and SADC reached an understanding in 2002 as the basis o f development o f the integrated Southern African Power Pool (SAPP) program. The Program’s main purpose i s to increase the availability and reliability o f low cost, environmentally friendly electric energy in the Southern Africa region, thereby improving industrial competitiveness, fostering growth, and increasing the region’s attractiveness for private investment. Both SADC and the New Partnership for Africa’s Development (NEPAD) regard this program as a pillar o f regional cooperation. Annex 2 provides a brief description o f the SAPP Program. The World Bank in partnership with several other donors i s supporting the SAPP Program through investment projects and technical assistance. The investment support i s designed as a series o f adaptable program loans (APLs).

22. The f i rs t phase (APL1) i s aimed at improving electricity trading in the SAPP and increasing security o f the SAPP system, making information available to all pool members and improving the speed o f transactions. It wi l l also make significant blocks o f hydropower from the Inga hydropower complex in the DRC available to the SAPP. I t s successful completion wi l l contribute significantly to attaining the benefits o f the Program. I t was designed with three main components o f which the DRC component (the high voltage transmission line from Inga to the Zambia border), and the new interconnector with Zambia constitute the largest (about 98 percent o f A P L l total cost o f US$200.2 million). The other two components comprise: (i) support to the

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SAPP Co-ordination Center to build i ts institutional, technical and power market operations capability funded entirely through donor assistance (US$3.2 million); and (ii) feasibility, and environmental and social impacts assessment studies for the future Zambia- Tanzania power transmission interconnection for which the Bank approved a credit o f US$l million to Zambia in September 2003. These two components were satisfactorily completed by the original project completion date o f December 3 1 , 2007.

23. The next two phases, APL2 and APL3 are aimed at helping to bring the current three non-operating members - Angola, Malawi, and Tanzania - into the SAPP, further strengthening regional interconnections, improving market operations, and laying the basis for the future integration o f the Eastern Africa and Southern Africa Power Pools. Two IDA credits were approved by the Board on July 1, 2007 in the amounts o f US$48 million to Malawi, and $45 million to Mozambique for the APL2 project (the Malawi- Mozambique power transmission interconnection). The feasibility studies for APL3, which will cover the rest o f the Program, are on-going. Completion o f APL 1 would enhance the benefits o f APL2 and APL3.

The SAPMP APLl Project

24. The DRC - Zambia APL l project involves an IDA Credit -in the amount o f SDR129.2 million to DRC (US$177.5 million - Project P069258), and was approved by the Bank's Board on November 11 , 2003. The Credit became effective on May 17, 2004. The original Credit Closing Date o f December 31, 2007, stands extended to December 31, 2009. The Project i s to restore the transmission corridor from Inga to the DRC border with Zambia to i t s original installed capacity (576 MW) and reliability performance level and to reinforce the interconnection with the Zambian power system in order to be able to deliver 500 M W o f firm power on a sustained basis to the industrial heartland o f DRC in the Katanga Province and also to the Southern Africa region.

25. This proposed restructuring o f the Project and Additional Financing would enable SAPMP APL l project, including the new additions discussed above to achieve i t s original objectives through implementation o f the following components (A detailed Project description i s provided in Annex 3):

rehabilitation and reinforcement o f the converter and inverter stations at Inga and Kolwezi respectively, including the rehabilitation o f synchronous compensators at Kolwezi, and the removal and replacement o f all Polychlorinated Biphenyls contaminated capacitor units and auxiliary transformers; rehabilitation and reinforcement o f the high voltage substations at Fungurume, Panda, Karavia, and Kasumbalesa, and installation o f a modern at the Transmission Control Center at Likasi; construction o f new 278 kilometers o f high voltage AC transmission from Fungurume to Kasumbalesa at the border with Zambia; rehabilitation o f the entire 2,280 kilometers HVDC and HVAC transmission lines from Inga to Kasumbalesa, including the towers;' installation o f a modern telecommunication system comprising about 2,300 kilometers o f OPGW and the associated electronic equipment from Kinshasa to Kasumbalesa to link with the SAPP telecommunication system; community development in seven villages in the Katanga Province comprising the Construction o f water supply and sanitation facilities, schools and supply o f basic

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furniture, clinics with basic equipment and six months supply o f basic medicine, electrification, and provision o f HIV/AIDS awareness campaign for communities along the transmission corridor in the Katanga Province; implementation o f the environmental and social mitigation measures o f the Project (but cash compensation, land acquisition and other resettlement aid paid in cash will not be financed by IDA, unless a special authorization i s previously granted in accordance with Annex A o f BP6.00 on Bank financing);

0 provision o f engineering and project implementation management services by international consultants;

0 technical assistance for: (i) procurement training in project management and supervision, including acquisition o f tools and equipment and management information system; (ii) private operation and maintenance contract for SNEL transmission assets; (iii) private management o f the commercialization o f the telecommunications excess capacity, and studies; (iv) an entity with international experience such as an NGO to provide additional oversight for the implementation o f the environmental and social mitigation measure, and implementation o f the HIV/Aids awareness campaign; and as an activity complementary to the Project (but not formally part o f the Project restructuring) construction o f a double circuit high voltage 220kV transmission l ine by CEC from Luano substation in Zambia to link with the DRC transmission system at Kasumbalesa (DRC border).

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26. Under the telecommunications component in the original project, i t was proposed to repair the existing Power Line Carrier (PLC) telecommunications system. In the revised appraisal, it has been determined that repairs to what i s now a technologically obsolete system would be uneconomic and the required performance and reliability levels wi l l not be achieved. Therefore under the revised proposals, the OPGW will consist o f 24 pairs o f optical fiber, o f which 3 to 4 pairs will be used by SNEL for operation and management o f the physical power infrastructure, as well as i ts internal needs for communications and management information system to enhance efficiency, speed o f power transactions, and cost-effectiveness. The remaining telecommunication capacity wi l l be made available for commercialization. It should be noted, however, that the total OPGW capacity and investment i s fully justified by SNEL’s internal needs alone.

27. Implementation o f the telecommunications component wi l l be consistent with the overall project implementation. SNEL and i ts implementing unit (UGP) will be supported by the international engineering and project supervision management consultant. A panel o f experts wi l l be assigned to further assist and guide SNEL on highly technical and specialized matters.

28. The project will provide technical assistance to SNEL for the purposes of: (i) designing the technical, contractual (e.g. shareholders agreement, transaction agreement) and business/economic aspects o f the commercialization contract o f the excess capacity; (ii) assisting the Beneficiary to recruit an internationally experienced private operator for the commercialization o f the excess telecommunication capacity under an Open Access regime; and (iii) preparing the necessary interconnection agreements. The broader aspects related to the telecommunications regulatory environment, legal and institutional framework wi l l be further developed under the on-going related Technical Assistance provided to the DRC for the preparation o f an ICT Policy and Strategy, including the drafting o f supporting legal and regulatory instruments by the GoDRC. These are critical building blocks for the successful commercialization o f the excess capacity o f the telecommunication system. As such the ICT

9

policy and strategy, as well as the needed amendments to the legal and regulatory framework are expected to be completed and adopted by DRC no later than June 30,201 1.

The PMEDE Project

29. The SAPMP Project i s closely linked to the Regional and Domestic Power Markets Development Project (PMEDE APL-lb), for which the Board approved a Grant to DRC of $296.7 million equivalent in May 2007. I t s development objectives are to improve the operational efficiency in DRC electricity sector and expand generation, transmission and distribution capacity in order to better serve domestic power demand and to support regional power market integration. The Project consists o f five main components: (i) Generation - rehabilitation o f Inga 1 and Inga 2 hydropower stations; (ii) Transmission - construction o f a new 400 kV transmission line from Inga to Kinshasa; (iii) Distribution- rehabilitation, reinforcement and expansion o f the power distribution system in Kinshasa; (iv) Capacity building - strengthening SNEL’s operational capabilities including activities regarding the governance within the utility specifically and in the sector generally; and (v) Project Implementation - provision o f consulting services for engineering, management and supervision o f implementation, procurement and financial management services. The PMEDE Project provides the required resources to develop GoDRC goal o f quickly improving the governance o f the sector and o f SNEL’s performance through a management contract. The benefits o f the SAPMP transmission Project wi l l only be realized if a properly executed rehabilitation program for the Inga 1 and 2 generating un i t s proceeds in tandem.

30. Presently, however, the complex produces about 700MW with poor reliability. The rehabilitation program under the PMEDE envisages rehabilitation o f the generating uni ts at the Inga 1 and 2 plants to make available about 1,300MW o f reliable production. The program also provides for investments in canal dredging and re-profiling and some civil works to enhance productivity. The rehabilitation o f the 14 Inga units will take 10-12 years and i s estimated to cost around US$550 million. A detailed rehabilitation program for the 14 units o f the Inga 1 and 2 facilities has been discussed and agreed with SNEL and i ts engineering consultants. The rehabilitation costs have also been updated to reflect the conclusions o f the additional detailed engineering studies carried out in 2008, as well as the recent international market conditions for electrical equipment and materials, exchange rate fluctuations o f the major international currencies, as well as the experience and lessons learnt from the ongoing rehabilitation o f unit G23 at Inga 2 and o f the other hydropower un i t s in the SNEL generating system. For these reasons, and as experienced with the SAPMP Project and other rehabilitation activities planned for DRC power sector, estimates o f the rehabilitation costs for Inga 1 and 2 have significantly increased, leading to a significant financing gap. However, the magnitude o f this financing gap will only be known upon receiving bids for the rehabilitation works.

Inga 1 has six units and Inga 2 eight, with a total installed capacity o f around 1,775MW.

3 1. A detailed description and proposed implementation strategy i s described in Annex 5, and summarized below (Table 1). The status o f the Inga 1 and 2 rehabilitation program i s as follows: (a) an initial repair work on unit G23 (160 MW), financed by the private sector, i s nearing completion and the unit will be re-commissioned by September 2009 to be followed by rehabilitation in 2016-2020; (b) the rehabilitation o f unit G12 (55MW), financed under the Bank

The Inga units are numbered G1 or G2 for Inga 1 and Inga 2 respectively, and the second numeral indicates the turbine number in the respective complex. G12 i s thus the second unit o f Inga 1 and G23 i s the third unit o f Inga 2.

10

emergency project (PMURR) and the PMEDE i s expected to be completed in July 2010; and (c) the rest will be carried out at varying periods to completion as shown in Table 1. SNEL and i ts consulting engineer and BCECO are preparing the bidding documentation as per the overall rehabilitation strategy.

32. The overall rehabilitation strategy i s based on the following criteria: (a) priority to be given as much as possible to units that are currently not operating; (b) as there i s a financing constraint, the least expensive uni ts to rehabilitate receive priority (lowest $/kW restored); and (c) in Inga 1 and 2A power stations, only two units in each can be rehabilitated simultaneously, and only one unit can be rehabilitated at a time so that the power stations continue to produce power to meet at least the critical load requirements, and also due to work-space limitations in the power stations. Employing these criteria, the f i rs t phase o f this rehabilitation program covering 8 o f the 14 units i s programmed to be completed in 2015-2016 at an estimated cost o f about US$370 million. This cost i s envisaged to be met partly through the existing PMEDE financing (about US$220 million allocated to generation) focusing on the rehabilitation o f the f i rs t six units to anchor the output needed to power the transmission line. Additional IDA financing will however be required to continue supporting the rehabilitation program. Secondly, the i s exploring private financing options. A private mining company i s currently negotiating with SNEL the arrangements necessary for raising commercial financing towards the rehabilitation o f two units at Inga, costing about US$50 million, in exchange for guaranteed future power supply. Finally, to meet the balance financing requirement o f US$l 00 million for the program up to 2015-2016, GoDRC i s working closely with and has asked the donors, in particular IDA, AfDB and EIB, to provide additional financing. An IDA additional contribution under the PMEDE, o f about US$200 million (subject to outcome o f the biddings) might be necessary to continue the rehabilitation o f Inga 1 and 2, and also to expand efforts on distribution, urgent rehabilitation and access expansion requirements in other parts o f the country. Completion o f the rehabilitation o f the 8 generating units wi l l bring total generating capacity to about 1,300MW by 201 5, with 950MW o f fully rehabilitated units.

33. Continuation o f the Inga 1 and 2 rehabilitation program - e.g. full rehabilitation o f the remaining 6 units by end-2020 - i s critical to the ability o f DRC to provide the power required by the domestic and the export markets. This i s a long term program and priority for the Completion o f the program (Le. all 14 units fully rehabilitated) will require an additional amount o f about US$180 million. The i s pursuing several options including the private sector and development partners to garner these resources, whilst in parallel pushing for reforms within the sector to improve overall efficiency and resource mobilization. A summary o f the Inga 1 and 2 rehabilitation program i s provided in Table 1 below.

Table 1 - Summary o f Inga 1 and 2 Rehabilitation Program

11

G28 Inga 2B Sep. 2009 Nov. 2010 May 2014 24 + 18 In order to maintain plant output, and due to physical limitations, only one unit from Inga2A & one from Inga2B can be out for overhaul at any one

Unit G23 is currently undergoing extensive repairs and should be back on stream at the latest in September 2009.

G22

34. I t i s important to note that the rehabilitation o f the Inga generation complex i s not intended only for exports. With only 6 percent electrification country-wide and growing demand in the capital Kinshasa and other urban centers, the and SNEL are planning to increase supply from Inga for the domestic market as additional capacity becomes available. Increase in domestic transmission capacity also is needed. The SAPMP A P L l Project will enable the restoration o f the power transfer capability o f 576 M W o f the H V D C and H V A C transmission lines from Inga to Kasumbelasa to serve, first, the industrial heartland in the Katanga Province, and for exports into SAPP. EIB has approved financing for a second transmission line between Inga and Kinshasa expected to be completed by 2013. As stated earlier, the PMEDE also supports US$30 mi l l ion for distribution system rehabilitation and reinforcement in Kinshasa and the GoDRC intends to seek additional support from donors including the Bank for this.

time.

Inga 2A Sep. 2009 Jun. 2010 Jun. 2015 42+ 18

35. The GoDRC i s also emphasizing rural electrification. The AfDB intends to provide about US$lOO million, comprising US$50 mi l l ion for Kinshasa distribution expansion and US$50 mi l l ion for Rural Electrification projects outside Kinshasa and the Katanga region. The Bank and AfDB have agreed to cooperate closely in preparing this project and some initial preparatory work and studies are being undertaken under the ongoing PMEDE.

36. The PMEDE also addresses critical governance and financial issues o f SNEL in l ine with GoDRC strategy discussed earlier. This i s further complemented by the actions being taken by the GoDRC to place SNEL under a management contract with an experienced power utility; these are within the scope o f the ongoing dialogue with the Bank. Critical and short- te rm actions to improve SNEL governance and performance, billing and collection, financial management and accounting, procurement and improved maintenance practices agreed with GoDRC and SNEL are currently under preparation to be implemented soon.

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SAPMP APLl Project Implementation Status

37. The Project i s technically complex and the Bank, GoDRC and SNEL have found i t s implementation challenging. The implementation i s considerably behind schedule and only US$19.2 million (end-April, 2009) or 10.9% o f the Credit amount has actually been disbursed. Out o f the six main contracts for goods and works, procurement for two has been completed. Procurement for a third contract, the largest and most complex one, i s expected to be completed by end-June when the contract i s to be signed These three contracts amount in value to about US$216 million and account for about 61% o f the estimated cost o f the Project. Progress i s being made on the procurement o f the remaining three contracts and it i s expected that these will also be completed between June and October 2009. The contract for engineering services has been procured and i s under implementation. The services o f BCECO had been engaged since 2003 for procurement and financial management services, training o f the staff o f the UGP in various aspects o f project management has been in-progress since 2006, consulting services to assist SNEL in export contract negotiations have been engaged, and important update o f the environmental and social impacts assessment has also been completed. As a result o f these actions, the existing initial credit o f US$177.5 million i s currently about 56% committed. Cumulative disbursements would rise to about US$5 8 million by end-June 2009 following the signing o f the largest contract. Thereafter following the effectiveness o f the additional financing, both commitments, through the award o f additional contracts, and disbursements are expected to increase rapidly (Annex I 7 provides the revised Disbursement schedule). Physical implementation o f the contract for the construction o f new transmission lines wi l l begin in September 2009 and, thereafter the Project i s expected to be on an accelerated path for completion, expected at end-December 2012. Summary status o f the main contracts i s provided in Annex 6, the implementation schedule in Annex 7, and detailed procurement arrangements are in Annex 18.

3 8. Re-tendering o f the remaining three main contracts representing about US$70 million i s in progress. The bidding o f those contracts failed for a number o f reasons: (i) non-conformance o f the bid received to the requirements o f the bidding documents; (ii) excessively high price offers in non-competitive situations that arose during the bidding process; and (iii) in one case no bid was received at all. These contracts comprise: (i) the supply and installation o f OPGW telecommunication system; (ii) the supply and installation o f social infrastructure for communities; and (iii) the rehabilitation o f the existing HVDC and HVAC high voltage transmission lines from Inga to the border with Zambia. The f i rs t two contracts are expected to be awarded in June- September 2009 and the last one in March 2010.

39. Bunk’s sufewurd policies. The Project i s a Category A project. The Bank safeguard policies triggered by the Project have all been fully complied with both in DRC and in Zambia. The Environmental and Social Impact Assessments (ESIAs), including the Resettlement Action Plans (RAPS), and Compensation Plans (CPs) for the population affected by the Project in DRC and in Zambia, prepared in 2002/2003, were updated in June and October 2008/January 2009 respectively and reviewed by the Bank. The compensation levels and the RAPs have been revised to reflect the changed conditions on the ground.

40. On the DRC side, and with respect to the construction o f a new transmission line between Fungurume and Kasumbalesa in the Katanga Province (278 kms. long and 50 m. wide), the enumeration o f affected land, other property, and the number o f affected households -410 households- have been established and documented. The information has been disclosed publicly

13

through the local press, radio and television, and publications in the localities and provincial capitals. To ensure full coverage o f all potentially affected households, additional public hearings have been conducted by SNEL in collaboration with local and Provincial authorities. In that context in October 2008, SNEL and the provincial Authorities carried out a mission focused on the Fungwume-Kasumbalesa section o f the transmission system. SNEL confirmed that no significant changes have occurred since the updating o f the environmental/social assessments terminated in June 2008. Based on authorization received from the DRC Ministry in charge o f Environment, in early February 2009 the Bank disclosed in i ts Infoshop the Updated Environmental and Social Impact Assessment (ESIA) study, the Resettlement Action Plan (RAP) and the Compensation Plan (CP) for the Project affected population. The studies and their recommendations were formally validated by the DRC Ministry o f Environment and a corresponding certificate delivered to SNEL in February 2009. The Council o f Ministers approved the SAPMP Project and on February 13, 2009, and on February 20, 2009 the Prime Minister asked the Governor o f the Katanga Province to take all actions required to proceed with implementation particularly with the granting o f the rights-of-way to SNEL. This was agreed by the Governor on February 25,2009.

41. On the Zambian side, in June 2003 CEC prepared an ESIA, including a CP and a RAP for the population to be affected by the construction by CEC o f an additional transmission l ine required to reinforce the existing 45 kilometer link between Luano (Zambia) and Kasumbalesa (DRC), which were approved by the Zambia Environmental Council (ZEC) for the o f Zambia. The ESIA respected the Bank’s safeguard policies, and was disclosed in the Infoshop. The CP and the RAP recommendations have since then been fully and satisfactorily implemented in line with the ESIA submitted to the Bank by CEC and with the Bank and Zambia environmental and social guidelines. The Progress Report on the implementation o f the ESIA, CP and RAP was completed by CEC in October 2008, was approved by ZEC, and submitted to the Bank. The Bank found the implementation o f CP and RAP totally in compliance with the requirements o f the ESIA, the Bank and Zambia guidelines. However because o f the delays in the implementation o f the corresponding investment in DRC, this additional l ine was not built. The 2003 ESIA was then updated in October 2008 to also take into account a two kilometer change in the transmission rights-of-way. This update affects the CP only since there are no physical structures and affected people to be relocated. There has not been any new encroachment o f population into the rights-of-way following the successful implementation o f the earlier RAP. The updated ESIA was disclosed in the localities and through local press, radio and television in Zambia in October and November 2008. The ESIA was subsequently revised by CEC in January 2009 to take into account the results o f the public discIosures, and submitted to the ZEC for i t s review and approval. The final ESIA approved by ZEC was submitted to the Bank. The Bank’s review confirmed full compliance o f the updated ESIA with the Bank’s safeguard policies, and has been subsequently disclosed in the InfoShop on February 26,2009.

42. All audit requirements for the Project Accounts have been complied with4. The audit requirements for SNEL financial statements have also been fully complied with. The resolution

Despite the provisions o f the Development Credit Agreement (DCA) for the original IDA credit, which provided for 85% eligibility o f IDA financing o f BCECO’s operating costs, which left 15% o f such costs unfinanced, BCECO had been withdrawing 100% o f its operating cost from the Designated Account. This discrepancy was not picked up by the auditors because they were relying on the French unofficial translation o f the DCA that did not indicate the percentage o f eligible expenditures for BCECO’s operating costs. The discrepancy has since been discovered and i s being corrected in accordance with paragraph 8 o f BP 12 on Disbursements, through a retroactive increase o f the percentage o f eligible expenditures for BCECO’s operating costs up to 100% (as was the case in other DCAs

14

o f the qualifications noted regarding SNEL’s financial statements, i s part o f the short-term action plan agreed with GoDRC and SNEL.

Reasons for Implementation Delays

43. The country situation at the time the Project was prepared was quite challenging. The detailed engineering studies were significantly hampered by the fragile post-conflict environment and the associated security concerns prevailing prior to appraisal, which prevented full inspection o f the condition o f certain sections o f the 2,200 km-long transmission line. The Project implementing entity, SNEL, was inadequately prepared for the early stages o f project implementation in terms o f staffing and organizational arrangements in particular for procurement. In the early stages o f the Project, numerous factors delayed both the design and implementation aspects; contributing factors included procurement challenges arising from the institutional and capacity constraints both in-country and on the Bank side. The process for the selection and contracting o f the critical Consulting Engineers took about 14 months. The detailed engineering work to prepare and launch the bid documents could be undertaken only after the Consulting Engineers came on board, resulting in the serious project implementation delays. Frequent changes o f staff in the Bank team during the initial implementation period contributed as well to the time taken in executing major procurement actions. Since 2006, with stable SNEL and Bank teams in place, implementation process has been on track to a point where major procurement actions are complete or nearing completion.

44. Due to the Project’s technical complexity, the preparation o f bid documents, pre- qualification processes o f f i rms for the four major contracts and associated clearances took a long time to be completed - starting from July 2005 when the pre-qualification documents were issued, to January 2007. New issues arose later with some o f the pre-qualified f i rms entering into mergers and acquisitions, which necessitated additional reviews and clearances by the Borrower and the Bank. As a result, the Borrower’s evaluation and the Bank approval process took rather long to be completed. Because o f the complexity o f the main contracts, site visits were mandated by the Project implementing entity for the potential bidders to get additional first- hand information on the ground. Therefore pre-bid conferences took nearly 3 months to organize and complete - much longer than for most Bank projects. However significant progress has since been made on the procurement o f the main contracts.

45. The delays in the implementation o f the compensation and resettlement action plan in DRC have been due to the time it has taken for the appropriate processes to be completed through the GoDRC and the Provincial authorities, involving approval o f the Project by the Cabinet and issuance o f letter from the Governor o f the Katanga Province to SNEL confirming support to SNEL for the implementation o f the Project in the Fungurume-Kasumbalesa section. Implementation o f the compensation schemes and o f the RAPS will commence following Board approval o f the proposed additional financing.

46. In view of the implementation delays, both Implementation Progress (IP) and progress towards achievement of the Development Objectives (PDO) have been on marginally unsatisfactory rating status for the past 30 months. However, by end-June 2009, three o f the six main contracts under the Project, should be signed. Such progress would trigger upgrade to Marginally Satisfactory status for the IP and DO from the current Marginally Unsatisfactory

entered into between IDA and DRC, based on the fact that BCECO i s statutorily exempted from any taxes and duties).

15

status. The Project could be further upgraded to full satisfactory status about end- December 2009 when nearly all the major contracts would have been signed and physical implementation o f some o f the already signed contract would have begun. A waiver o f OP 13.20 was granted by the Bank’s Managing Director in January 2009 to allow the preparation o f the additional financing for the Project, despite i t s marginally unsatisfactory status.

Reasons for Cost Increases and the Additional Financing

47. Total cost o f the original project was estimated at appraisal in 2002-2003 to be US$195.8 million, including the transmission link between Zambia and DRC to be constructed by CEC. The approved IDA Credit towards the financing was US$177.5 million equivalent. The current total cost estimate revised at appraisal in February 2009 to achieve the Project objectives stands at US$430 million; the financing gap i s expected to be US$252.5 million. The revised estimated project cost and comparison with the estimate at appraisal are provided in Annex 8 and 9. The main reasons for the cost increase are:

0 the proposed restructuring o f the project to scale up certain component activities, and the addition o f new components al l o f which are critical to assure the achievement o f the project objectives, and the sustainability o f the project output after completion;

increased cost o f electrical equipment and materials in the international market since the project was appraised in 2003, further consolidation o f the major f i r m s in the production o f electrical materials and equipment resulting in further tightness o f the market, as well as the highly specialized nature o f materials and equipment for the project with even fewer producers;

0 needed increase in scope o f some components due to further deterioration o f existing plant and equipment that had set in because of further passage o f time; and

volatility o f the US dollar relative to the major international currencies o f potential sources o f equipment and materials supply.

48. In order to contribute to meeting the financing gap o f US$252.5 million, this additional financing proposal recommends approval o f an additional US$180.62 million equivalent grant from IDA. EIB i s expected to contribute US$47.02 million equivalent; SNEL and US$6.86 million. In addition, in Zambia, CEC will carry out construction works at a cost estimated at US$18 million. Detailed description o f the additional financing proposal i s contained in the following section.

D. Additional Financing Project Description

Rationale for Additional Financing and Consistency with the Country Assistance Strategy

49. The rationale for IDA involvement in the Project i s well discussed in the 2003 PAD. The rationale for the additional financing i s the cost increases in the Project. In view o f the critical importance o f the project for DRC, the positive impacts it will have on the other regional power initiatives, continuation o f Bank support through the Additional Financing i s justified. As a HIPC country, DRC could not have raised the concessionary financing required to fill the financing gap on the project. Moreover, since the Bank appraised the project originally, and

16

contributed 97% o f the financing required, i t is important that the Bank remains actively engaged to see the project to i t s successful completion

50. The objectives o f this operation, i t s benefits, as wel l as the objectives o f the Bank in supporting the Project, remain valid in-spite o f the difficulties that have arisen in i t s implementation.

51. The Project is a high profile and economically viable one for the DRC, as well as for SADC. For DRC, it will enable the evacuation o f power from the Inga hydropower plants, and from the future development o f the Inga site, to the industrial heartland o f the country. The asset will serve as the future transmission backbone for the electrification o f major towns and cities in the hinterland o f the country. Regionally, with significant electricity exports enabled over time into the SAPP, DRC would earn significant foreign exchange earnings. The Project will at the same time serve to provide several SADC countries a source o f relatively l ow cost, reliable and clean power supply.

52. I t s success will be a good demonstration o f achievement to the other regional power integration initiatives that the Bank has embarked upon- the future Eastern Africa, the Western Africa Power and the N i le Basin Power Pools.

The Project is also a high visibility one for the Bank.

53, Consistencv with the Countrv Assistance Stratem. Improving the quality and reliability o f electricity supply for both the domestic market and for exports is a high priority activity o f GoDRC. The Country Assistance Strategy (CAS) for D R C was discussed by the Bank Board in November 2007. Derived from the PRSP and following on from the Bank Group’s Transitional Support Strategy o f January 2004 (report 27751), it sets out a road map for World Bank Group support to DRC for the medium term, with focus on infrastructure, institutions and policies. The SAPMP and the additional financing proposed here are fully consistent with the new CAS, which notes that electric power i s a prerequisite for growth generation as well as for a range o f economic activities in DRC, and a source o f foreign exchange through exports, and that major improvements in power supply will be needed to that end. The CAS notes that the Bank i s well- placed to lead and implement the growth related investments, including in the electricity sector.

Proposed Additional Financing

54. The combination o f difficult circumstances prevailing at the time o f the Project commencement, complexity o f the Project with regard to procurement and technical aspects, and capacity constraints for implementation contributed to significant delays. As a result o f this and o f expanded components, the total project cost has been revised to US$430 million. Compared to the original project financing this creates a gap o f US$252.50 mi l l ion to achieve Project objectives. The revised estimate takes into account the bids received to date, and industry accepted criteria for price and physical contingencies for a project o f this nature. In addition, a price adjustment formula has been provided for the main contracts that would take more than 18 months to complete. The adjustment formula allows for both escalation and de-escalation. To finance the additional cost, IDA contribution i s proposed to be increased by US$180.62 mi l l ion equivalent, comprising US$120.41 million from the Regional IDA allocation, since the SAPMP i s a regional project, and US$60.21 mi l l ion from the Country IDA allocation. The contributions include IDA financing o f 85% and 90% o f local costs in addition to 100% financing o f foreign exchange costs. The 90% o f financing by IDA o f the local costs o f certain contracts would

17

Financier Amount

DRC International DeveloDment Association

I Zambia

(US$ million)

358.12 (1) Societe Nationale d’ Electricite 6.86

111. Proposed Changes

European Investment Bank

Project Changes

47.02

Proposed changes to the PDO

Total Costs

56. The original PDO has been changed from “to develop an efJcient regional power market in the Southern Afiican Development Community to create conditions for accelerated investments in the power sector, increase competition and foster regional economic integration”, to “to facilitate further development of an efJicient power market in the Southern African Development Community ”.

Proposed changes to the Components:

430.00

57. The original APL l i s composed o f the following four main components:

Component 1 : Support to the SAPP Co-ordination Center

Component 2 : Rehabilitation and reinforcement o f the high voltage transmission corridor from Inga to Kasumbalesa at the border with Zambia

Component 3 : substation in Zambia to link the DRC transmission system at Kasumbalesa

Construction o f a double circuit 220 kV l ine by CEC from Luano

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Component 4: A feasibility and preliminary design study o f an interconnector between Zambia and Tanzania that would connect the SAPP to the market that would be formed by interconnecting Tanzania, Uganda and Kenya.

58. 2 above. This component i s split into subcomponents, Part A and Part B:

Out o f these four components, the proposed restructuring includes changes to Component

Part A (to be financed by EIB) consisting o f two subcomponents (i) Rehabilitation and reinforcement o f 220 kV substations in three locations- Fugurume,

(ii) Upgrade o f the System Control and Data Acquisition (SCADA) facility at the Likasi Panda, and Karavia; and

transmission control center. This subcomponent is a new activity.

Part B (to be financed by IDA and SNEL) comprises al l the activities described in paragraph 25 above excluding the 220 kV l ine in component 3 above. The modified and new activities as part o f the proposed restructuring, as discussed in paragraph 3 above comprise:

o Installation o f new control systems for the H V D C inverter converter substations instead o f the previously planned upgrade o f the existing obsolete, dilapidated control system

o Installation o f a modern optical fiber telecommunication system over the entire 2,300 kilometer transmission system from Kihshasa to Kasumbalesa on the border with Zambia instead o f the repair o f an obsolete power line carrier communication system

o Increased emphasis on environmental and social mitigation measures .o enhanced support for community development comprising water supply and

sanitation facilities, clinics and supply o f basic medicine, electrification, and an HIV/AIDS awareness campaign for communities along the transmission line corridor

o expanded technical assistance activities to establish: (a) a 5 year operation and maintenance contract for the power transmission assets, including training o f the power utility staff to take over thereafter; (b) a private operator to manage the commercialization o f excess telecommunication capacity, as well as i t s operation and maintenance; and (c) an entity with international experience such as a non- Governmental Organization (NGO) to provide additional oversight for the implementation o f the Resettlement Action and Compensation Plans

Proposed changes to institutional arrangements

59. emphasize actions to assure effective implementation and sustainability as described below.

There are no proposed changes 'to institutional arrangements. However, the project will

Proposed changes in financing plan

60. The financiers o f the original project were IDA, SNEL and CEC. In the restructured project, EIB will also participate in the financing in addition to IDA, SNEL and CEC. The contributions o f the various financing agencies in the original and the restructured project are provided in the following table:

19

a e f1gma an eVlse mancmg T bl 3 0 .. I dR' d FO PI an Institution Original Revised Contribution

Contribution IDA $177.50 $358.12 ($177.5 + $180.62) SNEL $8.53 $6.86 CEC $9.60 $ 18.00 EIB 0 $ 47.02 Total $195.63 $430.00

Proposed changes to financial management and disbursement arrangements

61. There are no chances to the financial management and disbursement arrangements.

Proposed changes to procurement arrangements

62. As per the Project Agreement dated January 21, 2004, Goods and Works were to be procured in accordance with the provisions of the Guidelines for Procurement under IBRD Loans and IDA Credits published in January 1995 and revised in January and August, 1996, September 1997 and January 1999, and consultants' services were to be procured in accordance with the Guidelines: Selection and Employment of Consultants by World Bank Borrowers published by the Bank in January 1997 and revised in September 1997, January 1999 and May 2002. However, due to the delays that occurred in procurement under the project, which did not begin until 2007, the Guidelines: Procurement under IBRD Loans and IDA Credits published by the Bank in May 2004 and revised in October, 2006 have been and will continue to be used. In addition, Guidelines: Selection and Employment of Consultants by World Bank Borrowers published by the Bank in May 2004 and revised in October 2006 will be applied to the new contracts for consultancy services to be procured under the additional financing.

Proposed changes to closing date

63. The original closing date of the project was December 31,2007. This has been extended twice and stands at December 31, 2009. Under this additional financing, a further three years extension is proposed to December 31,2012.

Proposed changes to implementation schedule

64. The original project implementation schedule envisaged completion by December 31, 2007. However as discussed above, due to procurement delays and an expanded project scope, implementation schedule is extended to be completed by December 31, 2012.

Actions to Assure Effective Implementation and Sustainability

65. At the recommendation of the Bank, the Borrower engaged a team of foreign experts to review and make recommendations on the implementation details of the critical and technically complex components of the project, such as the high voltage direct current (HVDC) component. The recommendations of the panel of experts have been taken into account in establishing the details of implementation of those project components. It has been verified that the current scope of the Project constitutes the minimum requirements to achieve the development objectives.

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requisite capacity and assure proper implementation. On the critical issue o f procurement, the success achieved by BCECO - the procurement agency - over the last 24 months that issues o f capacity in this area have been satisfactorily addressed.

67. include the following:

Measures to ensure implementation effectiveness and sustainability o f project outputs

A comprehensive procurement and implementation program by contract, including allowance for unexpected delays, has been agreed with the GoDRC and SNEL to achieve the new proposed physical completion date o f the Project at end-December 2012. The procurement and implementation programs were reviewed and confirmed during appraisal to ensure that any unforeseen and emerging constraining issues are captured, and closely supervised thereafter.

0 Staffing and organizational arrangements for the Project Management Unit (UGP) at both SNEL headquarters and work sites have been completed with a view to ensuring effective contract supervision (Annex 11). The additional necessary tools and training to enhance capacity have been agreed upon and implementation o f training and procurement o f tools and equipment which began in 2006 are near completion to ensure readiness for implementation. It has been agreed between SNEL and that the project implementation units o f this project and that o f the PMEDE will eventually be merged into a single project implementation department o f SNEL to manage and supervise the implementation o f al l SNEL’s development projects financed by external donors, including the Bank. Such an entity, with the addition o f the right expertise and training would bring added strength and effectiveness o f implementation to the SAPMP, and PMEDE, as well as future power projects. GoDRC has requested Bank assistance in this regard, which i s being’ provided under the PMEDE.

0 Support from an international engineering consultant has also been put in place with provision to engage additional short-term expertise to address critical and complex technical issues that may arise during implementation, especially during testing and commissioning o f some o f the more complex project components. Since SNEL has never implemented a rehabilitation project o f such complexity and in multiple disciplines as this project, it is important that adequate expertise be provided for the management and supervision o f implementation. To promote success, the international engineering consultant will direct the project activities on behalf o f SNEL in close cooperation with UGP. To enable smooth progress o f the project implementation, UGP and international engineering consultant have put in place an adequate project organization and sufficient staff and the logistics, which are tailored to the specific project needs and stages o f implementation as follows: (i) design and approval stage; (ii) manufacturing stage; (iii) factory acceptance stage; (iv) shipping, delivery, storage and construction stage; and (v) commissioning.The design and approval stage, which i s critical to implementation success, will be carried out by a back-stop experts’ team o f the international engineering consultant’s head office in close collaboration with field office in Kinshasa and UGP/SNEL staff. The back-stop team will include the Project Director, his Assistant and a poo1,of experts, who wil l be called upon when required for specific tasks. These experts will also be available for the factory inspection and acceptance testing visits, as may be needed, and for coordination meetings with contractors and UGP/SNEL.

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0 The international engineering consultant’s site staff will be dispersed to the various work sites in l ine with organization arrangement to manage and supervise the works with UGP staff, who at the same time will benefit fkom transfer o f know-how. Since the nature o f the works varies considerably, some will be permanent in some locations, and other will move in mobile offices to closely monitor quality o f work and implementation progress. Ease o f communications and transportation is vi tal for the success o f the construction supervision. As such, a comprehensive Management Information System (MIS) will be set up for the purpose. Permanent offices o f the international engineering consultant and UGP will be in Kinshasa, Inga, and Kolwezi and Likasi. Testing and commissioning stage o f the project, will be supervised by a team comprising the international engineering consultant’s head-office expert team, the f ield staff and with UGP/SNEL staff.

0 Procurement support to the Project from the procurement agency, BCECO, has improved substantially through the additional procurement staff assigned to the Project, and the retention in BCECO o f the services o f the international procurement expert. Further to a Bank review o f BCECO and consecutive Bank’s May 2007 recommendations, the GoDRC ordered a management audit o f the institution, under terms o f reference acceptable to IDA. BCECO was audited to assess its internal controls and recommend improvements in efficiency, transparency and accountability. The July 2008 audit report, prepared by an international firm, concluded that BCECO was well-managed overall and adequate to carry out project implementation, including fiduciary responsibilities. The report also recommended upgrading various controls, establishing a proper management accounting system, and improving the accountability o f the management steering committee. Based on these recommendations, the GoDRC, in close collaboration with the Bank, has agreed on a 12-18 month action plan. The Bank will follow up i t s implementation closely.

The Bank supervision team has been strengthened to take account o f the multi-sector nature o f the project, although the power component remains the main one, to enhance quality and effectiveness o f supervision o f the project. The core o f the team comprises staff with expertise in the management o f implementation o f complex projects, procurement, engineering, economics, financial management, environmental and social safeguards, and back-up support. In addition, the team includes staff with expertise in community capacity development for the management o f community social infrastructure systems, public health for the HIV/Aids, I C T legal, regulatory, and commercial aspects.

To ensure sustainability o f the Project output and development impact, the and SNEL have agreed that an operation and maintenance contract (O&M contract) for the operation and maintenance o f SNEL’s high voltage transmission assets would eventually be entered into between SNEL and an experienced entity by 2012. The financing o f the O & M contract and O&M expenditures have been discussed and agreed upon between SNEL, EIB, and IDA. Agreement has also been reached with GoDRC and SNEL on the commercialization o f the excess capacity o f the optical fiber telecommunication system by an internationally experienced private operator under an Open Access regime. (See section Vr).

22

0 To ensure that adequate and timely counterpart funding i s available, agreement has been reached with SNEL on the amounts and timing o f contributions into the Counterpart Fund Account.

0 A Joint Implementation Team has been established by SNEL and CEC under the Infrastructure Agreement between them to coordinate and monitor implementation activities and progress o f the construction o f the new transmission lines in DRC and the new interconnector to be built by CEC. This i s to facilitate exchange o f information on both the physical as well as the environmental and social aspects, and also to identify potential technical interface issues o n both transmission lines and the OPGW telecommunication system and be able to address them timely.

0 The updates o f the ESIAs and the RAPS both in DRC and Zambia include the revision o f compensation levels and other measures to ensure that al l the mitigation measures and the resettlement o f affected population have been addressed and fully comply with the World Bank guidelines. A dedicated team, comprising environmentalists and social scientists within the project implementation unit, has been established since 2003 to implement the Compensation Plan and the RAP and CP. Additional staff comprising two social scientists and two environmental specialists with demonstrated expertise in their fields o f expertise, are to be assigned to the Project management unit to further strengthen implementation capacity. Additional support is to be provided by the international engineering consultant, and an entity with an international experience such as an N G O i s to be recruited to provide additional oversight o f the RAP implementation. The recruitment by SNEL of two environmental specialists and two social scientists and the recruitment of an entity/NGO with expertise acceptable to the Bank is a condition of effectiveness of the Grunt Agreement. Additional IDA remedies have been included in the Project in case CEC fails to comply with the safeguards requirements in Zambia, even though IDA i s not participating in the financing o f the activities carried out by CEC in Zambia.

0 With respect to DRC and to ensure that the RAP and the Compensation Plan (CP) are satisfactorily implemented, provision has been made in the Counterpart Fund contribution o f SNEL for the project to fully cover the financing required for the R A P and CP. The NGO providing oversight o f the implementation o f the CP and SNEL, will be required to provide a completion report on the implementation o f the RAP and the CP, including an audit report to be issued by an independent auditor on the disbursement under the RAP and CP. The issuance of the Completion Report and audit of disbursements f iom the counterpart fund is a dated covenant in the Financing and Project Agreements.

68. As part o f the actions to ensure more effective implementation o f this Project, and in the context o f the PMEDE operation, the Bank continues to pursue active policy dialogue with the authorities on sector reform. This has led in particular to the preparation o f a short term action plan aimed at improving SNEL governance and financial management before a 5-year management contract is eventually entered into by SNEL and takes effect. A l imited number o f critical entry points have been selected to be implemented, covering the areas o f financial management and accounting, reporting, procurement, and bi l l inghd collection. These actions would address the most significant weaknesses in terms o f internal controls and financial management that have been identified by SNEL external auditors. Implementation i s expected to

23

start shortly, and would help to enhance SNEL’s performance, in particular with respect to financial matters. Those actions in which SNEL management lacks the required capacity, external experts will provide implementation and management support and capacity strengthening.

69. has been reviewed updated and adapted (Annex 13). Monthly and quarterly progress reports wi l l be issued by the Project Implementing Unit set-up by SNEL.

Results Framework and Monitoring. The results framework and monitoring mechanism

IV. Expected Outcomes

70. The project aims to facilitate further development o f an efficient regional power market in the Southern African Development Community. The achievement o f this proposed new PDO will be monitored through the following indicators:

o Quantity o f firm and reliable electricity exports from DRC to the SAPP;

o Quantity o f firm and reliable power supplied to the mining sector in Katanga.

71. Commercial and technical information about local and regional electricity supply and market i s available to pool members and the public on a regular basis. The implementation o f the Project should also catalyze the next stage in the development o f the Inga potential (such as the Inga 3 hydropower station with a proposed additional generating capacity o f about 4,300 MW) as it will provide reliable transmission access to markets within DRC and SAPP, and will reduce the amount o f investments in additional transmission capacity.

V. Benefits and Risks

Benefits and Re-evaluation o f Economic Justification

72. The economic merit o f the Project has been re-evaluated at the higher total project cost and taking account o f the delays in completing the Project relative to the expectations at appraisal, as well as the rehabilitation o f Inga 1 and 2, and the future generating capacity additions, including Inga 3 expected to be in service by 2020. The re-evaluation o f the economic justification i s carried out in three stages as discussed below. The details o f assumptions and analyses are provided in Annex 15.

73. Existence o f markets to be served by the Project. There are rapidly growing electricity markets in two main locations to be served by the Project. First, the market provided by the mining companies, industries and households in the industrial heartland o f DRC in the Katanga Province. Electricity demand in the Province i s projected to grow from about 300 M W (2436 GWh) in 2008 to about 1,000 M W (8593 GWh) in 2015, and to remain at about that level thereafter (an average annual growth o f 19% over the f i rst 7 years). This relative rapid demand growth i s attributed to the expected growth o f mining sector. However with the recent downturn in the international markets for metals, electricity demand may continue to drop; SNEL i s continuously reassessing both short and mediudlong term impacts. The other market i s provided by the SAPP, where demand o f the integrated Pool, excluding DRC, i s projected to grow from 47,000 M W in 2008 to about 60,000 M W in 2012, and to reach about 85,000 M W in 2020. The SAPP offers a large market for the relatively low-cost hydro-based electricity o f DRC,

24

which could lead to overall reduction in the cost o f electricity in the SAPP, and promote industrial competitiveness and economic growth in the Southern Africa Region. The potential demand over the medium to long-term for imports from DRC i s as large as DRC i s able to supply. The SAPP wil l therefore be an alternative market for any decline in demand in the mining sector o f DRC. Following its completion at end-2012 the Project will transmit 200-500 MW o f power from the Inga hydropower plants into the Katanga Province to complement supply from the generating plants in the Province and for exports into the SAPP (see Annex 15). I t i s fair to say that the economics o f power exports in Southern Afr ica have firmed up considerably in favor o f DRC compared to the time the original project was prepared.

74. Least-cost means o f se'rving the markets. The Project st i l l represents the least-cost means o f providing the transmission capacity o f 576MW from the Inga hydropower stations to the border with Zambia and at the end o f the interconnector to Zambia, at the total cost o f US$430 mi l l ion to serve the market in the Katanga Province and for exports into the SAPP. This i s compared with the alternative o f constructing a new transmission system o f same capacity and over same distance at an estimated cost o f US$1.2 billion, or the construction o f an additional 600MW new generating capacity and associated transmission l ines at an estimated cost o f US$700 mi l l ion for power that would have otherwise been transferred along the transmission l ine into the Katanga Province and for exports into the SAPP. The SAPP Pool Plan study o f medium to long-term generation and transmission expansion program for the integrated power pool, completed recently by international consultants for the SAPP Co-ordination Center, confirms the Project as part o f the least-cost future main transmission backbone development o f the SAPP. This new SAPP transmission backbone will be required to transport hydro-based generation from the future Inga hydropower plants for exports into the SAPP. The Project also provides the least-cost means o f bulk power transmission for the future electrification and expansion o f access to cities and towns in the hinterland o f the country, which presently have no access to electricity.

75. Profitability o f the Project as measured by the economic rate o f return (ERR). The Project economic profitability i s better today than it was in 2003. The estimated ERR now i s 3 1 percent, excluding the benefits that would arise from the leasing o f the excess capacity o f the telecommunication system component, compared to the estimated long-term opportunity cost o f capital to DRC o f 10 percent. Compared to the ERR o f the original project (21%), the net benefit i s higher because the value o f delivered power has increased substantially from UScl.O/kWh in 2003 to USc7.0/kWhy the long-run marginal cost o f the SAPP discounted to the DRC border with Zambia. Even if a value o f USc5.65kWh i s used (base-load generation cost o f the SAPP discounted to the border o f DRC), the ERR i s s t i l l 24%; at a value o f USc3.5/kWH, the ERR i s 10%.

76. and benefits in real terms. Costs comprise:

The estimation of the ERR follows the traditional approach o f comparing economic costs

The delivered incremental cost o f electricity to the transmission system based on the estimated cost o f generation from Inga 3 o f USc2.7/kWhY as a proxy for the long-term marginal cost o f generation o f the DRC power system. Inga 3 i s the next-in-line candidate development in the DRC long-term least-cost generation expansion program. The next developments will be the Grand Inga schemes which are further in the future;

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0 The project’s capital cost estimated at US$393 million, excluding price contingencies; and

0 The SAPMP transmission system annual fixed operation and maintenance cost, estimated at US$12 mi l l ion on the basis o f cost o f a new transmission system.

77. Net electricity transfers into Katanga Province, after adjustment for 6.5-percent transmission losses, are expected to increase from about 1947 GWh in 2013, following completion o f the Project, to 3940 GWh in 2018, and expected to remain at about that level for the future. Exports are maintained at a level o f 210 MW on firm continuous basis (100-percent load factor -1840GWh per year). Until year 20.13, when the new Inga-Kinshasa 400 kV transmission l ine i s built and operational, the consumption in Kinshasa would be limited to the power transfer capability o f 400 MW o f the existing transmission line. The net energy flows on the transmission line to feed into the Katanga Province and for exports into SAPP are projected to increase from 3787 GWh in 2013 to 5521 GWh in 2018, and remain at that level for the remaining l i fe o f the Project. (Annex 15).

78. N e t energy transfers are valued at USc7.0/kWhY as the value to DRC o f a unit o f electrical energy consumed and or exported. It reflects the long-term Willingness-to-Pay (WTP) by the mines in the Katanga Province as compared to the cost to them o f the alternative thermal generation, or o f imports at the border with Zambia. The WTP i s achievable by the time the Project i s completed, as time i s required for DRC to re-establish confidence in the market that it is capable o f providing electricity into the market on a sustained reliable basis. This will be assured by the completion o f this Project as well as the completion o f the rehabilitation o f the Inga 1 and 2 generating facilities. For several years now, supplies to the mines and to the customers in the SAPP have been subject to high levels o f unreliability.

79. The WTP is estimated as the net-back value o f the average incremental cost (AIC) o f base-load and peak-load electricity at the bulk supply level in the SAPP o f USc8.69kWhY which also reflects the long-term WTP in the SAPP. This is adjusted for marginal cost o f transmission estimated at USc0.65/kWhy based on the SAPP regional least-cost transmission expansion program, and cumulative technical losses o f 12% from Southern Afr ica to the DRC-Zambia border. In this case, the value to DRC considers the opportunity cost to the SAPP o f the alternatives to the SAPP in-lieu o f imports from DRC. It enables DRC to capture further consumer surplus as a result o f its relatively more cost-effective hydro-based generation and bulk supply at an estimated marginal cost USc2.73kWh. Since electricity exports from DRC into the SAPP i s considered to be available 100-percent o f the time it could be used to meet both base- load and peaking requirements. The net-back price o f USc7.0kWh captures both roles o f DRC exports. The case o f considering imports from D R C for base-load duty only with WTP estimated at USc5.6KWh was used as one o f the sensitivity scenarios examined, because it i s not far in excess o f the export sales tar i f fs recently negotiated or under negotiations, and the current average price to the mines.

80. Ten alternative sensitivity cases were considered to test the robustness o f the ERR; the results are summarized in Table 4 below. They confirm the robustness o f the ERR with values well above the opportunity cost o f capital to DRC. They show that the ERR is more sensitive to the price o f electricity and impacts o f delays in completing the rehabilitation o f Inga 1 and 2 than to capital cost increases. In the extreme and highly unlikely scenario o f the combined effects of: (i) 20% project capital cost increase; (ii) 5

26

Sensitivity analyses.

years delay to 2025 in completing Inga 1 and 2 rehabilitation; (iii) 5 years delay in completing about 500 M W of new generating capacity additions mostly in the Katanga Province to complement supply and enable contractual exports; and (iv) energy valued at the lower price o f US$0.O565/kWhy the ERR i s s t i l l robust at 17%. The impact o f prolonged 20% decline in the demand o f the mining sector in the Katanga Province would lower the ERR to 26% and if the current average price for bulk sales to the mining companies was considered as a proxy for the willingness-to-pay, the project ERR would be equal to the cost o f capital o f 10%.

Base Case and Sensitivity Cases Considered

Base Case: 6) power transfers from West to Katanga Province take account of distribution system constraints in Kinshasa in the early years until Inga 3 comes into service;(ii) export contractual obligations fully met; (iii) cost of energy delivered to the transmission system based on marginal cost of generation from Inga 3 at USc2.27/kWh; and( iv) electricity sales valued at USc 7/kWh as the WTP of the integrated SAPP for DRCpower net back to the DRC border with Zambia Alternative 1: capital cost increase of the Project by 20% Alternative 2: energy valued at USc 5.6YkWh for base-load supply

Net Present Value (US$ Million) at 10% Discount rate

817

773 500

Alternative 3: 2 years delay in completing Inga 1&2 Alternative 4: 20%capital cost increase + 2 years delay in completing Inga land2+enerw value at USc 7/kWh

787 743

Economic Rate Return ("/.I

31

27 24 29 26

21

37 27. 17

26

Alternative 5: 2 years delay in completing Inga I and 2 +20% capital cost increase + energy value at USc 5.65/k Wh Alternative 6: increase power transfer capability to I O O O M W Alternative 7: 5 years delay in completing 500MW of new capacity Alternative 8: combined effect of 20% capex increase; 5 years delay in completing Inga I and 2; 5 years delay in completing new additional generating capacity (500MW); and lower energy value at USc5.65/kWh Alternative 9: 20% reduction in energy transfers to the transmission line due to decline in mining sector demand Alternative 10: energy valued at USc3S/kWh, the current average bulk supply to the mining sector, as an estimate o f the long-term willingness-to-pay

10

434

2124 692 3 04

598

0

8 1. of US$115.4 million The estimation was based on:

The estimate o f ERR at appraisal o f the original Project was 22% with N e t Present Value

the project capital cost o f US$169 million, without price contingencies;

fixed operation and maintenance cost based on information obtained from SNEL records;

energy cost to the transmission system based on production from the Inga hydropower stations;

electricity exports into SAPP initially from 500 M W and projected to increase to about 800 M W on firm continuous basis (Le. at 100% load factor) from 2010 onwards and

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maintained at that level for the remaining 30 year l i fe o f the rehabilitated transmission system; and

0 energy sales valued at the then negotiated price o f U S c l k W h for exports to ESKOM as measure o f benefit to DRC.

82. Sensitivity analyses were also carried on assumptions o f 20% variation in the capital and fixed operation and maintenance costs, as well as the price o f energy. They confirmed the robustness o f the ERR estimated.

83. The other benefits not considered in the above analysis include the benefits to DRC o f the use o f the excess telecommunication capacity to be made available for a l l the various forms of communication and information for private and public business applications and household uses applications. It will provide the first broad-band telecommunications back-bone infrastructure for DRC, and expected to reduce cost o f telecommunications services by two-thirds. An approximate conservative estimate o f the incremental gross revenues accruing to the whole sector i s estimated to be in the range o f US$500 mi l l ion for the first 6-7 years o f operation o f the telecommunication system.

84. The benefits o f commercializing the excess telecommunication capacity will f low from various I C T applications for the private, public, household and business sectors and in revenues streams for SNEL. As part o f the I C T strategy preparation, various options are being assessed for the optimization o f the national infrastructure networks to which the new OPGW can contribute.

85. The OPGW installed for SNEL will connect to that o f i t s partners in the SAPP in Zambia and Southern Africa with the potential to connect to undersea cables and global telecommunications networks. SAPMP may act as a catalyst or an important connected component o f additional regional infrastructure projects which would radically change the I C T potential o f Central and Southern Afr ica (see attached map). These are:

0 The World Bank-supported Central African Backbone Project (CAB) which could link to the OPGW from the North;

The World Bank-supported Regional Communications Infrastructure Program (RCIP) which could link to the OPGW from the East and for which D R C i s eligible to apply; and

The West African Festoon System (WAFS) o f undersea cables along the West Africa Coast which could link to the OPGW from the West with the current project to link Muanda to Kinshasa.

86. The provision o f social infrastructure to the communities along the transmission l ine corridor from Fungurume to Kasumbalesa under the Project, comprising water supply and sanitation systems, construction o f schools and clinics, including provision o f school hrniture and six months supply o f basic medicines, electricity supply, and the implementation o f HIV/Aids awareness campaign will bring added improvement in the quality o f l i f e o f the communities, and generate more economic activity; and

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87. The catalytic effect o f the Project in attracting private investments into the rehabilitation o f Inga 1 and 2, as well as for the development o f Inga 3, because o f the access it will provide to markets in the Katanga Province and in the SAPP. Without the Project, such investments would not be realized, or would require the construction o f new transmission system at much higher cost with longer delays.

Risks

88. below:

The overall risk o f the operation i s assessed as “substantial” as described in the matrix

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Risk

Political. Disruption o f the ongoing political reconciliation process that could undermine the project implementation. Corruption. Experience with other projects in D R C highlights the serious risk o f corruption particularly in major infrastructure projects.

Time required for implementation o f the project. Given the proposed revised project closing date o f December 2012, there are risks that the fabrication, delivery, installation and testing o f material and equipment would take longer than the estimated time in the implementation schedule.

Additional Cost Overruns.

Major increase in the scope o f work due to further deterioration o f the transmission system, which could have negative impact on the project cost. Financing. /SNEL inability to Produce their financing share for

Risk Rating

H

S

S

M

L

S

Risk Mitigating Measures

Whi le the political situation seems to be stable, the Bank will continue to work closely with the UN and other development partners to monitor the political situation. Procurement. The procurement arrangements under the Project have been designed to assure full transparency o f a l l processes leading to contract award in strict accordance with Bank procurement guidelines. An internationally known engineering firm is supporting DRC particularly on procurement matters. Major procurement action i s near completion with most o f main contracts awarded or near award stage. Heightened Bank supervision will address potential issues o f corruption that may arise during implementation. As needed third party support will also be mobilized.

Financial Management is handled by BCECO. Project related financial matters are subject to periodic external audits; BCECO as the financial management agent i s also subject to external audits. This i s a serious risk given that some o f the equipment to be procured under the Project, especially with the technologically complex components o f the Project, which are at the same time in relatively high demand, with few suppliers. For the largest contract, which potentially poses the highest risk, the winning contractor is also the manufacturer o f the equipment; this could mitigate the risk of potential delays. All major contracts should be signed just after Board approval o f the additional financing as procurement process has already been completed. Additionally, reasonable amounts have been added to the project cost to account for price and physical contingencies that could arise during implementation. Steps were taken before the launching o f the bids to ensure that implementation details update the scope o f work for each contract. In addition site visits prior to bidding were organized with the potential bidders. In order to mitigate this risk, /SNEL contribution to this project i s limited to 1.6% o f the project

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the project.

Project Sustainability. Given the past performance o f the utility in the operation and maintenance o f the transmission system, the rehabilitated system could fall into disarray. In addition, the sustainability o f the infrastructure services that would be put in place under the community development component poses a significant challenge and risk.

Inga 1 and 2 rehabilitation: Delays in completing the rehabilitation works at Inga 1 and Inga2 due for example to financing constraints, and impacting on the availability o f power supply to the transmission system, and subsequently on economic viability o f the investments in the transmission line. Institutional Capacity for implementation. Weak institutional capacity and lack o f proper organizational arrangements.

M

H

H

cost or US$6.86 million and will be paid progressively over the next three years o f the implementation period. GoDRC and SNEL have agreed in principle for retaining an O&M contractor to operate and maintain the transmission system for a period o f at least five years and to train SNEL staff in operation and maintenance o f the transmission systems. In addition, the Bank i s working with the under the PMEDE project for the reform o f the power sector and o f SNEL, including handing over the operation and management o f the electricity utility to an experienced utility.

Lessons from past experience on social community infrastructure services will be utilized to design systems for community, local and provincial support to ensure continuing maintenance o f the infrastructure services to be provided. Although, commitment to the rehabilitation o f Inga i s strong, there are technical, legal and financing issues which may lead to additional delays. Significant efforts are currently made to minimize implementation risks as follows: (a) priority i s given to the rehabilitation o f non- operating units; (b) SNEL i s assisted by an experienced Consulting Engineer; and (c) additional financing from public sector and mivate sector sources i s currentlv sought. In the past three years, staffing and organizational arrangements for the dedicated Project Implementation Unit (UGP) at both SNEL headquarters and work sites have been completed with a view to ensuring effective contract supervision and project management. Necessary equipment and tools, and training programs for capability strengthening have been put in place. Working arrangement with the Engineering Consulting firm hired to assist in supervision o f project execution has also further been strengthened. UGP has also high degree o f autonomy to ensure i t s efficiency in management o f procurement and implementation issues with the assistance o f the engineering consultant. In addition by merging existing project implementation units, SNEL has established and i s currently strengthening an overall Project Management Unit remonsible for the

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Excess telecommunication capacity. Legal and regulatory framework insufficient to enable effectively the optimization o f the commercialization o f the excess telecommunication capacity.

Implementation o f environmental and social safeguards in Zambia.

M

M

implementation o f all projects, particularly the SAPMP and the PMEDE projects. This should fbrther strengthen capacity for implementation o f the Project. However, there i s the risk that overall weaknesses o f SNEL as an organization, instability within the organization through rapid and frequent top management changes could adversely affect the capacity o f UGP to effectivelv manage imdementation o f the Proiect. The has committed to take all measures necessary on his part to unable commercialization o f the excess capacity to a private operator under an open access regime, in accordance with application laws and regulations. Another Bank supported project i s supporting adoption o f an ICT Policy Strategy and drafting o f supporting legal and regulatory instruments.

CEC has committed to SNEL and IDA that it would comply with the Bank’s and Zambian environmental and social safeguards requirements, subject to certain conditions. IDA may exercise i t s remedies under the Financing Agreement if CEC’s commitment does not become effective by the agreed date or if, having become effective, it i s breached. Furthermore, Zambia, under separate Development Credit Agreement, has committed to caus,e CEC to comply with the Bank’s and Zambian environmental and social safeguards reauirements.

VI. Financial Terms and Conditions for the Additional Financing

89. The original IDA Credit approved in September 2003 was on-lent to SNEL at quasi- commercial terms. SNEL’s accumulated financial losses are very high; it has therefore been agreed with the GoDRC that the Additional Financing be provided to SNEL as a grant to strengthen SNEL’s financial situation.

90. Conditions for Board Presentation VB: Condition met) Confirmation by CEC o f i t s financing to construct the additional transmission link between DRC and Zambia.

0

91. Signing: 0 Amendment o f the Development Credit Agreement providing for the Original Credit and

corresponding Project Agreement wi l l be signed at the same time as the Financing Agreement and the Project Agreement for the Additional Financing for purpose o f consistency.

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92. Conditions o f Effectiveness

0

0

0

Execution o f the Subsidiary Agreement. Effectiveness and availability o f funds under the EIB Co-financing Agreement in form and substance satisfactory to IDA. Recruitment or designation by SNEL o f two environmental specialists and two social scientists with qualifications acceptable to IDA for the Project Recruitment of an entity for the purpose o f providing the project Implementing Entity additional oversight in the supervision o f the implementation o f the Resettlement Action Plan and the Compensation Plan. Opening up o f the Project accounts with terms and conditions acceptable to IDA. Signed amendment to the Protocol d’ Accord between SNEL and BCECO Revision o f the Project Implementation Manual by SNEL satisfactory to the Association The Amendment to the Zambia D C A signed between Republic o f Zambia and the Association

0

0

93. Additional Dated Covenants

Appointment o f the Contractor for the Operation and Maintenance o f SNEL Transmission Assets:

(a) N o later than April 30, 2010, SNELLJGP should appoint a consultant for the design o f operation and maintenance services for SNEL’s transmission assets; drafting o f terms o f reference (including required qualifications and experience) for the appointment o f the O&M Contractor; the delineation o f the high voltage transmission system to be covered by the O & M contract; determining the funding requirements to perform the operation and maintenance o f the power transmission assets until the O&M contractor has been recruited.

(b) N o later than September 30, 2012, appointment by SNEL o f the O&M Contractor.

Provisioning of the project accounts as per schedule agreed upon between DRC, SNEL and IDA.

Appointment o f an internationally experienced private operator to commercialize the excess capacity o f the telecommunications system under Open Access regime:

(a) N o later than December 3 1 , 2009, recruitment by SNEL o f a consultant to: (i) design the services to be provided for the management, maintenance, operation and commercialization o f the excess telecommunication capacity; (ii) assist with the recruitment o f an internationally experienced private operator for the commercialization o f excess telecommunication capacity under Open Access regime; and (iii) assist with the necessary interconnection agreements.

(b) (i) N o later than September 30, 2010 the shall (identify al l measures required to select the operator in accordance with applicable laws, and prepare a timetable for the implementation o f the measures, and (ii) no later than September 30, 2012, implement such measures.

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(c) No later than September 30, 2012, appointment by SNEL o f the international private telecom operator.

Safeguards:

(a) No later than September 30, 2010, the Recipient shall furnish to the Association a Completion report on the implementation o f the RAP, including the Compensation Plan.

(b) No later than September 30, 2009, the conditions o f effectiveness o f the CEC Commitment to IDA and SNEL will have been satisfied.

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ANNEX 1 : DRC ELECTRICITY SECTOR REHABILITATION AND DEVELOPMENT STRATEGY, AND ALTERNATIVES CONSIDERED FOR THE REHABILITATION OF THE INCA-ZAMBIA TRANSMISSION

ASSETS

Democratic Republic o f Congo: Southern Afr ican Power M a r k e t Project (SAPMP) - APLl Addit ional Financing

1. This annex provides background information on DRC power sector overall strategy and on the rehabilitation programs currently implemented or planned under the PMEDE and SAPMP programs, and also on the alternatives considered to carry out the implementation o f the rehabilitation o f the transmission assets - the SAPMP Program.

I - Background

DRC Hvdroeeneration Generation, Transmission, D e m a n d Level and ProsDects

2. The Inga hydroelectric complex i s a project o f regional importance. The site has a potential o f about 44,000 MW; so far two generating plants have been commissioned: Inga 1 and Inga 2. The generation o f the fully rehabilitated Inga 1 and Inga 2 plants (in total 14 units) would bring the Inga system installed capacity to 1,775 M W o f nameplate capacity, able to generate 1,610 M W . Current generation i s about 700 M W as more than half o f the generating uni ts are idle and al l the units are in need o f rehabilitation. Details o f the Inga 1 and 2 installed capacity i s as follows:

Inga 1 : 6x 58.5 M W 351 M W Inga 2: 4x 178 M W 712 M W

4x 178 M W 712 M W Total 14 units 1,775MW

3. The national transmission system consists mainly in: (i) over 2,000 k m s o f power transmission lines and substations originating at the hydroelectric complex o f Inga, providing power to the mining companies and other industrial complexes in the Katanga Province o f DRC, continuing to the DRC/Zambia border, and connecting to the Zambia power system and to the Southern Africa power pool. This transmission system serves as backbone for the DRC system and includes one o f the longest DC transmission lines in the world; and (ii) the transmission line from Inga to Kinshasa (260 km) and to Brazzaville (Republic o f Congo).

4. The demand for electricity has been increasing rapidly both in DRC and in the Southern Africa region. Excluding exports to Southern Africa and the Republic o f Congo and the demand from the proposed aluminum smelter, electricity demand i s projected to grow from 770 M W GWh in 2008 to about 1670 M W in 2015, and to reach about 2268 M W in year 2025, an average annual growth o f about 7% over the period. Most o f the demand wi l l however continue to be concentrated in the Western part o f the country because o f the demand from the capital Kinshasa and the other major urban centers in the West. Demand in the industrial heartland and in the Southern part o f the country i s projected to grow significantly but will be mainly related to evolution o f the mining sector. Between 1,600 and 2,000 M W may also be needed for a new aluminum smelter expected to be commissioned around 201 8-2020 during a new stage in the development o f the Inga potential (most likely Inga 3).

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5. The regional demand i s also projected to expand rapidly. A recently completed study o f generation and transmission expansion for the Southern African Power Pool (SAPP) by international consultants concluded that the SAPP regional demand will grow from about 306,093 GWh (46,950 MW) in 2008 to about 403,294 GWh (63,530 MW) in 2015, and 448,254 GWh (77576 MW) by 2020, an annual average growth rate over the period o f about 4.3%. About 80% o f the demand wi l l be accounted for by South Africa. The SAPP offers therefore a large market for exports o f power from DRC. Current level o f exports i s however low at 100 M W firm; SNEL has indicated that it wants to provide at least 210MW o f capacity to the SAPP prior to the commissioning o f the next stage o f Inga.

T h e Domestic and Revional Markets DeveloDment Proiect (PMEDE) and the Southern Afr ica Power M a r k e t Proiect (SAPMP)

6. Two projects - the PMEDE and the SAPMP - supported by the World Bank, the European Investment Bank and the African Development Bank are currently under implementation.

7. The PMEDE proiect - an IDA grant o f $296.7 million equivalent was approved in 2007 - aims at: (a) rehabilitating some o f the generating units o f Ingal and Inga 2 and the facilities common to the two power plants; (b) building an additional transmission l ine to Kinshasa to increase the quantity and reliability o f power delivery; (c) rehabilitating and reinforcing the distribution system in the capital Kinshasa; and (d) initiating the dialogue with the for the strengthening o f the power utility (SNEL) performance. To that effect the PMEDE project includes activities supporting a new institutional set up and legal framework for the sector which should improve transparency, attract private sector investments and transform SNEL into a modern power utility. Work has been initiated to address some weaknesses o f SNEL particularly with respect to commercial and financial management, procurement, and internal controls and audits. Preparatory work i s also progressing on a 5-year management contract for SNEL. The PMEDE wi l l also seek to complete rehabilitation activities initiated under the IDA financed Emergency Infrastructure program (PMUUR). Annex 5 discusses in more detail the PMEDE project and the status o f the rehabilitation o f the Inga and Inga 2 generating units. Additional financing to the PMEDE operation i s needed to account for the increase in the rehabilitation costs, to strengthen the institutional set-up o f the power sector, support private sector participation and the reform o f SNEL, further improve distribution technical and commercial performance; and prepare the next stage o f Inga development.

8. The SAPMP proiect addresses the rehabilitation o f the high voltage transmission system, the backbone o f DRC power system, originating at the Inga site and ending at the Zambia border, 3,000 kilometers from Inga. The SAPMP project would inter alia improve the reliability o f supply to the mines in the Katanga region and to the export markets. It should also create the condition for private sector participation (in particular by the mining companies, one o f the principal benefactors o f a reliable and low cost power supply) in financing the rehabilitation o f the Inga 1 and 2 generating units. The SAPMP project i s discussed in detail in Annex 2.

11. Main Power Sector Issues

9. Due to many years o f lack o f maintenance and o f civil strife, o f focus on commercial and financial aspects, o f maintaining i t s human capacities, DRC’s power sector i s in need o f large

36

scale and profound rehabilitation, financial restructuring and renewed management. Access to electricity services i s on average 6% (one o f the lowest access rate in Sub-Saharan) with less than 1% access in rural areas. Furthermore the quality o f the services i s poor.

Rehabilitation Needs

10. The existing infrastructure i s in very poor condition and need to be rehabilitated. The key areas already mentioned are: (a) the Inga 1 and Inga 2 generating facilities and also hydroelectric generation facilities in the rest o f the country; (b) the Inga-Kolwesi-Zambian border high voltage transmission system - the SAPMP Project -; and (c) the distribution system. Increased attention i s also needed on the distribution system and to rural areas (where electricity access i s about 1 YO). The following paragraphs briefly discuss the rehabilitation o f the Inga generating units and some other generating plants and o f the distribution system.

1 1. To complete the program o f rehabilitation o f all the 14 units o f the Inga hydroelectric plants, the rehabilitation and extension o f the transmission system and the rehabilitation and reinforcement o f key distribution systems an additional US$ 500-$600 million over the next five years i s needed, o f which about $300 million i s needed for generation. This i s more than what the donor community can commit now. SNEL cash flow i s too weak to contribute to project financing under the present arrangements. A limited number o f creditworthy investors, such as mining companies, have expressed interest in financing the rehabilitation o f some un i t s at Inga. To attract private sector financing for rehabilitation and for green field projects a new policy and strategy and institutional framework for PPP are needed. For these reasons and also to further access to electricity, the Ministry o f Energy, with the support o f the Bank, has initiated the preparation o f a power sector policy and strategy and o f a new electricity law. (see section 111 below).

12. The program agreed with SNEL and i t s international consultants envisages the rehabilitation o f all 14 generating un i t s over the next ten years to be concluded in 2020. To achieve this it i s proposed that additional IDA financing be sought from the Board, be applied to financing the rehabilitation o f 8 units to be completed by 2015/2016, including the works required to rehabilitate the existing civil structures o f Inga 1 and 2. As one unit i s currently overhauled with private sector financing, financing for the remaining five units will however need to be secured. Should the private sector financing not fully materialize, it i s proposed that a second Bank project for a designated Phase 2 o f the rehabilitation program under IDA 16 be submitted to the Board to complete the Inga 1 and 2 rehabilitation program. Other power generating units in the Katanga region and in the Eastern and the Central parts o f the country are also in need o f rehabilitation with limited financing available.

13. SNEL’s distribution system i s underdeveloped and in poor condition. This will however be solved only progressively, combining improved billing, collection and commercial and management practices, with the physical rehabilitation o f the infrastructure.

Development of DRC’s Dower System

14. The GoDRC i s also reviewing i t s options with respect to new generation facilities. Because o f the long lead time required to commission hydroelectric facilities, substantial efforts need to be made to complete the necessary feasibility and engineering studies. This relates in particular to preparing: (a) the next stage in harnessing Inga’s potential (such as the Inga 3

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project: 4,300 MW, or the first phase o f Grand Inga) and (b) medium size hydroelectric plants such as Nzi lo I1 (120MW), Zongo 2 (120MW), or Busanga (240MW). Generation, transmission and distribution master plans proposed about 20 years ago need to be updated, and technical, financial and economic feasibility studies need to be carried out.

SNEL Commercial and Financial Performance

15. SNEL commercial and financial performance is also very weak. As for other state-own enterprises such as REGIDESO - the water utility -, the GoDRC has decided to bring SNEL under a 5-year management contract to be executed by an experienced utility. In the short term, actions have been initiated to improve billing and collection from some customers, financial and cash management, procurement, and also to address the issues listed in the external auditors report. In parallel with these actions and with the objectives o f increasing transparency and attracting private sector interest and financing, the GoDRC with Bank support i s preparing a detailed power sector strategy and a new electricity law.

Imdementat ion CaDacity

16. facilities and o f the transmission system i s a key issue:

Implementation capacity particularly with respect to the rehabilitation o f Inga generating

0 SNEL past performance leads to conclude that it needs to strengthen its capacity to implement a complex rehabilitation program including the Inga hydroelectric site and the reconstruction o f the Inga-Zambia border transmission line. SNEL therefore needs to be supported by an experienced international project manager in addition to the international consulting engineer. SNEL will also need to rely on a Panel o f Experts for assistance and guidance on highly technical matters.

Two Project Implementation Units (PIUs) - one in the context o f the PMEDE project, and one in the context o f the SAPMP project - had been put in place within SNEL. To improve their effectiveness, the GoDRC and SNEL have agreed to eventually merge these two PIUs, strengthen the new implementation unit technical expertise, and plan to further reinforce it with international experts.

111- Electricity Sector Strategy

17. The overall strategy for DRC power sector is to take full advantage o f its large and relatively cheap hydroelectric potential with sites o f various sizes and wel l distributed countrywide. This potential should provide electricity services at l o w cost to meet the increase in domestic demand and to stimulate social and economic development, while in the medium term increasing revenue earning exports and becoming an important and reliable player in the SAPP regional power system. The strategy seeks to address in parallel the key issues of: (a) rehabilitation o f the existing generation, transmission and distribution infrastructure currently operated by SNEL; (b) raising additional financing in particular to complete the rehabilitation o f the. Inga 1 and Inga 2 generating units; (c) preparing the next investments in particular in generation; (d) increasing implementation capacity; and (e) significantly improving power sector performance, in particular o f SNEL.

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18. In June 2008, the GoDRC presented i t s vision for the sector, and i s now developing, with Bank support, a detailed policy and strategy document and a new electricity law. The policy and strategy aim at:

e

e

e

19.

e

e

e

e

e

Meeting domestic electricity demand in DRC by increasing access in urban and rural areas, providing additional power to the mining sector and other sectors to support economic growth;

Ensuring full participation o f DRC in the Southern African Power Pool (SAPP) and in the Central Africa Power Pool; and

Generating royalties and other revenues from power supply to DRC customer base and to the export markets.

Key results expected from the power sector strategy are to:

As soon as possible rehabilitate the Inga-Kolwesi-Zambia border transmission system (by 2012), while in parallel progressively rehabilitate the Inga 1 and 2 generating units to their original installed capacity o f 1,610 M W (completed by 2020), and the related common facilities through the SAPMP project;

Increase access o f the urban and rural population to electricity services; for rural electrification focus on off-grid alternatives in addition to grid based electrification;

Ensure the technical and financial sustainability o f the rehabilitated power system (generation, transmission and distribution);

Develop the next stage o f the Inga hydroelectric potential (Inga 3 or the first phase o f Grand Inga); and

Mobilize private financing for the rehabilitation and development o f the electricity sector to reduce the financing gaps, as a test for the development o f Inga 3

IV- Alternatives Considered for the Rehabilitation of the Inga-Zambia Transmission Assets

20. Alternative implementation strategies have been delineated and assessed with respect to carrying out the power sector rehabilitation programs. Table 1 presents the pros and cons o f the selected overall strategy, and table 2 presents options considered to rehabilitate the high voltage transmission system - the SAPMP transmission system.

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Table 1 : The Overall Implementation Strategy

Strategy Pros

rehabilitation o f the- SAPMP transmission system (from Inga to DRC border with Zambia) and rehabilitate Inga 1 and 2 under public sector and PPP arrangements when feasible. Improve SNEL commercial and financial performance and the domestic distribution system in parallel.

Continuity with current approach (initiated 5 years

SAPMP Project ready to be presented to the Board in June 2009. Procurement work already done for the main transmission contracts. N o changes in contracts already awarded. Technical studies available. N o restructuring of existing Bank projects. N o issues with co- financiers. Strong Bank message in support of Regional Integration. Provides incentives for private sector financing of the rehabilitation o f Inga 1 and 2 generating facilities. Simpler projects; Minimize implementation

ago).

Cons Transmission line completed before optimum date with respect to power flows, even though economic return o f transmission l ine rehabilitation investment i s quite robust. Financing plan for the rehabilitation of Inga not complete at date of approval of SAPMP Additional Financing. Portion o f the transmission line (from Kolwezi to the DRC border) may be un- usedhnderutilized, if the generation rehabilitation i s delayed for lack of financing.

21. With respect to the rehabilitation o f the high voltage transmission systems - SAPMP project - four different alternative strategies have been assessed by the team, leading to the conclusion that the transmission system should be rehabilitated as soon as possible.

Table 2: Options to Rehabilitate the Transmission System

Strategic Option Option 1: Carry out as soon as possible the rehabilitation of the transmission system required for domestic demand and defer the strengthening o f the 220 KV export system.

Option 2: Defer the rehabilitation o f the transmission system till additional power i s available from Inga 1 and 2 i.e. by 5-6 years (financed in part through the PMEDE Inna

Pros I Cons 0 Improves project economic

return by deferring $70 million o f investment (about 16 %) of project costs.

0 Reduces SAPMP financing requirements by $70 million in the short term.

0 Provides incentives for private sector financing of the rehabilitation of Inga 1 and 2 generating facilities.

0 Weaken message regarding Bank support to regional integration. Undermines DRC efforts to demonstrate to the Southern African Power Pool and the Central Africa Power Pool that DRC i s a reliable regional partner. Some o f the SAPMP contracts already signed.

0 Provide time for mobilizing complete financing for generation and transmission.

Procurement will need to be totally reinitiated with a high risk of lack of interest. Procurement advances over the last 2 years to be lost.

0 Loss of existing approved

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rehabilitation program).

Option 3: Request in about 8 0 Could provide a more months additional financing for: (1) the full public sector rehabilitation o f the Inga generating facilities; and (2) the transmission system.

coherent view o f the l inks between Inga rehabilitation and transmission system rehabilitation.

Option 4. Merge the two 0 Explicitly link in one projects, and request additional 1 document the generation - .

financing for a new and combined generatiodtransmission project.

project with the . transmission project.

IDA credit o f $178 million Substantial negative impacts on Bank’s reputation with DRC, private sector/contractors, donor community, etc. Without appropriate rehabilitation the Inga- Kolwezi transmission system may collapse leading to severe economic impacts.

Additional economic costs to DRC. Bids validity wi l l need to be extended; procurement wi l l need to be delayed; procurement advances over the last 2 years wi l l be lost. Substantial negative impacts on Bank’s reputation with DRC, private sector/contractors, donor community, etc. Increase project complexity Without appropriate rehabilitation the Inga- Kolwezi transmission system may collapse leading to severe economic impacts.

0 See cons re. Strategy 3 above. 0 Need to restructure two

existing projects, modify existing legal agreements, etc.

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ANNEX 2: DESCRIPTION OF THE SOUTHERN AFRICAN POWER MARKET PROGRAM

Democratic Republic o f Congo: Southern African Power Market Project (SAPMP) - APLl Additional Financing

1. The Southern African Power Pool (SAPP) was created on September 28, 1995 during the period in which the SADC Energy.Protoco1 was being developed. It was established by the Inter-Governmental Memorandum o f Understanding (IGMOU) among seven o f the eleven members o f the Southern African Development Community (SADC). In December 1995 the Inter-Utility Memorandum o f Understanding (IUMOU) was signed by the national power utilities. At present, the util i t ies o f the following SADC countries are members o f the SAPP: Angola - Empresa Nacional de Electricidade (ENE); Botswana - Botswana Power Corporation (BPC); Lesotho - Lesotho Electricity Corporation (LEC); Malawi - Electricity Supply Corporation (ESCOM); Mozambique - Electricidade de Mozambique (EdM); Namibia -Namibia Power (NamPower); South Africa - Electricity Supply Commission (ESKOM); Swaziland- Swaziland Electricity Board (SEB); Tanzania - Tanzania Electricity Supply Company (TANESCO); Zambia - Zambia Electricity Supply Corporation Limited (ZESCO, Ltd); Zimbabwe - Zimbabwe Electricity Supply Authority (ZESA); and the Democratic Republic o f Congo - Societe Nationale d’ElectricitC (SNEL). The SAPP was the f i rst formal international power pool established outside o f Europe or North America. The Pool comprises an area o f 9.09 million sq. km and approximately 174 million people. The total number o f electricity customers o f the combined national interconnected systems was about 6.4 million in 2008. The total peak load in the SAPP in 2002 was 38,115 MW, and 47,000 M W in 2008 with an average load factor o f 70%. The total generating capacity o f the SAPP in 2008 was about 50,000 MW, 74% o f which i s provided by thermal plants mostly coal-fired. Since the hydro capacity i s subject to hydrological fluctuations the effective capacity i s lower.

2. At present, there are two classes o f members in the Pool: (i) operating members linked to the interconnected - regional grid and participating in the power trade, and (ii) non-operating members, which are yet to construct the transmission l ine linkages to the regional grid to participate in and enjoy the benefits o f the regional power market. The non-operating members are ESCOM (Malawi), TANESCO (Tanzania) and ENE (Angola).

3. ESCOM (Malawi) and TANESCO (Tanzania) are expected to be connected to the regional power market through, respectively, EdM (Mozambique) and ZESCO (Zambia). The construction o f the transmission line interconnection between Mozambique and Malawi i s expected to begin in 201 1. The timing o f interconnection between ENE, SNEL and NamPower wi l l depend on the need to move power South through Angola.

4. The SAPP i s organized under the Executive committee, which acts as the board o f directors o f the pool and i s responsible for the overall pool policy, and a Management committee, which oversees the administration o f the Pool. Three subcommittees serve under the direction o f the Management committee and are in charge o f technical issues: the Planning Subcommittee (which focuses on reviewing power wheeling rates annually and developing an indicative SAPP expansion plan every two years), the Environmental Subcommittee and the Operating Subcommittee with i t s associated Coordination Center. The Coordination Center in Harare, Zimbabwe, has several functions, the most important being the technical oversight o f pool operations and acting as a trading center for electricity flows across the borders o f member

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countries. There are also special working groups, comprising representatives o f member ut i l i t ies with relevant expertise, that are formed on an as-needed basis to address specific issues that arise (e.g. the Telecommunications Working Group has developed recommendations for a suitable and financially viable telecommunication infrastructure to support competitive trading in the region and to facilitate secure and sound operations o f the SAPP power grid; and the Quality o f Supply Working Group i s working to establish standards for quality o f supply in the SAPP and their measurements, etc.).

5. The SAPP Agreements state that the purpose o f the Pool is to allow i t s members to coordinate the planning and operation o f their systems while maintaining reliability, a degree o f autonomy, and sharing o f the benefits - including reductions in required generating capacity and reserves, reductions in fuel costs and improved use o f hydro-electric energy. The objectives include reduction in investment and operating costs and enhancement o f the reliability o f supply through providing opportunities to coordinate the installation and operation of generation and transmission facilities.

6. The SAPP members agreed to begin their pooling operations as a loose, or cooperative, pool. Loose pools emphasize gaining the maximum economic and reliability benefits from trading within the parameters o f maximum system autonomy. These pools do not employ central dispatch and tend to be characterized by long-term bilateral contracts for the supply o f electricity between particular generators and customers, supplemented by offsetting short-term contracts and other deals under the overall agreement framework. Loose pools may provide central services such as data gathering and provision-- including providing continuous real-time data to match generation and demand, producing indicative expansion plans, and implementing emergency procedures. Loose pools also establish detailed common design and operational standards to ensure system security and reliability, and to facilitate trades.

7. However, recently the SAPP has been focusing on moving from a cooperative pool to a tighter pool. Operating as a cooperative pool the SAPP brought to i t s members benefits o f support in emergency situations and increased reliability o f supply. Competition was not promoted between members and the cost o f electricity was centered on recovery o f operating costs. Moving to a tighter pool would require ensuring open access to transmission infrastructure and addressing the issues o f the differences in size o f the util i t ies within the SAPP. Otherwise, effective competition would be difficult to envisage.

8. Initially, since each member has an obligation to meet domestic demand, some members hesitated to rely on the Pool for large proportions o f domestic load because o f reliability problems in the operation o f the interconnected transmission system. Gradually, as transmission system reliability improved, members have become more comfortable with taking a large proportion o f their power requirements from the pool, when it reduces cost, rather than maintaining full domestic capacity to cover their demand and reserve requirements. As an example, imports from the SAPP cover about 70% o f power demand in Botswana and Namibia, and about 40% in Zimbabwe.

9. The trading environment within the SAPP i s poised for fundamental change. The primary reason for this i s the imminent depletion o f the excess generation capacity, which has been an enduring feature o f the region's electricity sector over the past two decades.

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10. Since the formation o f the SAPP in 1995, the trading has been characterized by large supply/demand imbalances. The supply surplus has resulted in electricity being traded at prices well below long run marginal costs. This situation was tenable for as long as no new major generation investments were required. However, as a result o f growth in regional demand, the deferral o f major generation investments and the retirement o f aging plant, new generation capacity has been required since 2007, when the SAPP began to face serious supply deficits. The new investments can only materialize if the SAPP market i s restructured appropriately so that prices are based on economic levels.

11. term Power Purchase Agreements (PPA) and the Short Term Energy Market (STEM).

There are two market mechanisms currently employed in the SAPP trading namely, long

12. Historically, the PPA mechanism was the only form o f trading with contracts typically lasting for 10-15 years. Whi le PPA prices are meant to reflect both fixed and variable cost cqmponents, the actual agreed prices in the SAPP have been well below the long run marginal costs, since the fixed costs were considered sunk and largely unrecoverable in a market with large excess generation capacity. Most o f the PPAs expired beginning 2007, when the supply deficits became acute. The new PPAs wi l l not be based on historically low price levels but on long run marginal costs. The long run marginal costs are expected to be between two to three times the current PPA price levels.

13. Over the past two years STEM trading has increased rapidly. STEM trading i s predominantly based on day-ahead short term contracts for the supply o f energy in hourly periods. The STEM pricing i s based on the variable cost component. In a pool with large hydro generation such as the SAPP market, there i s considerable potential for this type o f trading. As a result, the prices in the STEM market have been significantly lower than the average PPA prices and uti l i t ies have displayed an increasing interest for this form o f trading. However, since STEM trading does not recover fixed costs, it cannot encourage new generation investments.

14. The STEM market mechanism i s expected to be transformed into a classical competitive pool mechanism, where the power pool players receive the system marginal price plus an availability payment. The system marginal price i s the price o f the most costly plant dispatched at any given hour. The availability payment i s based on the Value o f Loss o f Load (VOLL). This mechanism allows producers to recover their required return on assets, thus encouraging new generation investments.

15. The persistence and predominance o f STEM i s heavily dependent on the amount o f excess generation in the market. The risk o f failing to contract for the required energy in a pool with large excess generation i s low since there are potentially a number o f sellers o f energy. However, in a pool with l i t t le surplus generation, there may be a considerable risk o f a utility falling short o f their energy requirements. The STEM market in the SAPP has expanded rapidly over the past two years as utilities took advantage o f the excess generation within the SAPP. As a result, the risks o f day-ahead trading have become significant as the surplus generation has been exhausted. Member ut i l i t ies now prefer to enter into PPAs for the bulk o f their demand requirements using the STEM market for 'top-up' requirements.

16. In summary, it i s expected that the trading mechanisms within the SAPP wi l l change significantly over the next few years. Many o f the long standing PPAs expired in 2007 and

44

2008, and new ones are under negotiation. The new contracts are likely to be shorter and based on long run marginal costs resulting in a two to three-fold increase in prices.

45

APL. 3 2012-

Angola ,' I

* - _ _ _ - - - '. 1 Tanzania ,> - - _ _ _ _ - - . Linking Angola and Tanzania to

SAPP

APL 2 2009-

- - - - -_ I -

Mozambique . ($48 m) * - - _ _ _ - - *

Linking Malawi to SAPP

APL 1-b 2007- (S297 rn Grant)

. APL 1 Hydro Power stations

Rehab o f Inga-1 and Inga-2

2003-

. Rehab o f existing 2000 km HV T- line

S A P P

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ANNEX 3: DETAILED PROJECT DESCRIPTION


1. The objective o f the Project has been revised from the stated objective in the Development Credit Agreement to provide for greater clarity with respect to the pr4ect’s achievable goals. The re-stated objective i s to facilitate further development o f an efficient power market in the Southern African Development Community (SADC). This is important to create conditions for accelerated investments in the power sector, to increase overall economic competitiveness and to foster regional economic integration among the participating countries.

2. It i s proposed to restructure the project by modifying some o f the components and adding new essential ones to ensure that the output o f the project can be achieved and be sustained. Project, as restructured, therefore, consists o f the following components:

Component 1 - Rehabilitation and Reinforcement of Converter and Inverter Stations at Inga and Kolwezi (US$142.08 million)

3. This comprises the replacement o f the core systems o f the two converter and inverter stations at Inga and at Kolwezi respectively. As the rehabilitation o f the existing installation hasn’t proven feasible it has been decided that the valves, cooling and control systems should be replaced in order to obtain reliable and modern stations. The replacement will enable also to increase the rating o f the equipment from the original 2x288 MW (total 576 MW) to 2x500 M W (total 1,000 MW) This upgrade i s possible with minimal additional cost due to the high power thyristors used in the modern installations. The overall capacity will, however, remain at the original installed capacity level after rehabilitation since the converter transformers and the f i l ters on the A C side will not be replaced or upgraded under the project to enable the capacity o f 1,000 MW.

4. This contract includes also a major rehabilitation o f the A C 220 kV switchyard equipment and i t s protection. The replacements o f the circuit breakers and i t s control/protection will substantially improve the overall reliability.

5. A further component o f this contract i s the repair and rehabilitation o f the three synchronous compensators, required for the converter operation in Kolwezi. One damaged unit will be overhauled and the common equipment, such as the switchgear, starting and control/protection equipment will be replaced.

6. All PCB contaminated equipment, such as the capacitor units and the auxiliary transformers will be replaced. These will be kept in safe storage, temporarily, and subsequently disposed o f f outside D R C through incineration under the services o f an internationally experienced firm.

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Component 2 - Rehabilitation and Reinforcement of Extension 220 kV Substations at Fungurume, Panda, and Karavia, and Installation of Modern SCADA System at Likasi Control Center (US$47.02 million)

7. The rehabilitation o f the existing 220 kV substations on the axis between the Kolwezi converter station and the Zambian border will enable the reinstatement and the reinforcement o f the HV highway for the electrical energy exchange with Zambia and SAPP countries.

8. The project scope comprises the replacement o f the unreliable equipment, such as the circuit breakers, current transformers, but also the replacement o f the technologically antiquated control system and unreliable protection relays.

9. At the Karavia substation near Lubumbashi inductive power compensation equipment shall be installed to improve the unfavorable reactive power balance and improve the system stability o f the H V A C network.

10. existing SCADA facility at Likasi will be upgraded.

To enhance efficiency o f operation and management o f the transmission system, the

Component 3 - Construction of the new 220 kV Overhead Lines from Fungurume to Kasumbalesa (US$75.78 million)

11. The existing overhead lines will be reinforced by the construction o f the new l i n k s between Fungurume, over Panda and Karavia, up to the Zambian border at Kasumbalesa. The existing line has limited capacity, which leads to frequent power supply interruptions to Zambia. This will be eliminated with the construction o f this new line.

12. A single circuit 220kVoverhead line will be built from Fungurume to Panda, and to Karavia, and a double circuit line from Karavia to Kasumbalesa at the border with Zambia. This contract also includes the supply and installation o f a medium voltage line from Shituru to Likasi for the operations o f the upgraded Control Center.

Component 4 - Rehabilitation of the HVDC and the HVAC Overhead Lines (US$22.36 million)

13. The existing overhead transmission lines f rom Inga through Kolwezi to Kasumbalesa at the border with Zambia will be rehabilitated. The works will include the H V D C as well as the H V A C lines, and the transmission towers The rehabilitation work includes replacement o f al l broken or missing parts such as the earthing wire, broken insulators, replacement o f sections o f the main conductors, both D C and A C as may be needed, improvement o f some erosion zones, and to strengthen tower foundations, repair o f broken bridges, and reclamation o f parts o f the rights-of-way. The preparatory works for this contract will include the detailed aerial diagnostic study o f the transmission line, including condition assessment o f the 10,700 towers in order to secure the optimum requirements for satisfactory completion o f the rehabilitation.

Component 5 - Telecommunication System (US$40.88 million)

14. This component consists o f three sub-components, which are mutually dependent. It involves the supply and installation o f a modern OPGW fiber cable over a distance o f about

48

2,300 km and associated electronic communication equipment to be installed over the high voltage transmission line from Kinshasa through Inga and Kolwezi to Kasumbalesa at the border with Zambia to link with telecommunication system o f Zambia and the Southern African Power Pool. Sub-component 1 (US$15.29 million): Supply and delivery o f the optical fiber cable (OPGW cable);

Sub-component 2 (US$17.34 million): transmission towers; and

Installation o f the OPGW on the high voltage

Sub-component 3 (US$8.25 million): electronic repeater equipment

Supply and installation o f the telecommunication

15. The complete system will replace the existing inoperable technologically antiquated PLC system on the H V D C line, which has been out-of-service for several years. The new telecommunication system will allow SNEL the connection and communication between the new network centers in Kinshasa and Likasi and o f course enable the proper operation o f the rehabilitated converter and inverter stations at Inga and Kolwezi, the entire high voltage transmission system, improved communications with the rest o f the Southern African Power Pool, and enhance the speed o f transactions.

16. Beside the utilization o f this fiber optic cable for SNEL internal communications and controls, a large excess telecommunication transmission capacity beyond the needs o f SNEL will be commercialized by internationally experienced operator under Open Access regime.

Component 6 - Engineering and Construction Supervision (US$17.55 million)

17. Contract for the Engineering and construction supervision has been signed with an international engineering consulting firm. The services include assistance to SNEL in preparation o f bidding documents, follow-on procurement processes to conclusion o f contracts with selected bidders, project management and supervision o f implementation.

Component 7 - Transmission Link between Luano and Kasumbalesa (US$18 million)

18. This component comprises the construction o f a new double circuit 220 kV from Luano substation in Zambia to the border with DRC to link the DRC transmission system. I t is to reinforce the existing single circuit 220 kV, which has been unable to cope with the power transfers from D R C into SAPP, and to enable power transfer capability o f 500 MW. The existing line with the associated substation i s owned and operated by the Copperbelt Energy Corporation o f Zambia, a private bulk transmission company that purchases power in bulk mainly from ZESCO o f Zambia and supplies to the individual mining companies in the copperbelt o f Zambia. Luano substation i s the off-take point for E S K O M o f power delivered by D R C to its customers in the SAPP.

Component 8 - Diagnostic Study of the State o f the Existing HVDC and HVAC Transmission Lines (US3 million)

19. This component is for the services o f an experienced transmission engineering firm to undertake and provide a comprehensive technical audit o f the state o f the existing H V D C and

49

H V A C transmission lines from Inga to the border with Zambia (2,000 km) ), including the transmission towers, to establish requirements for rehabilitation o f the transmission lines under

Component 4. contracting for Component 4 will be based on the results o f this technical audit.

Design and technical specifications for the bidding documents for the

Component 9 - Operation and Maintenance for the Transmission Assets (US829 million)

20. This component i s to provide technical assistance for the design o f the Operation and Maintenance Contract, through the procurement, and engagement o f an O & M Contractor. It will also assist in establishing the demarcation o f the high voltage transmission assets o f SNEL. The component also finances the mobilization o f the O & M operator and the essential tools and equipment, including the two specialized heavy duty helicopters needed for the task. The selected O & M Contractor must have operating experience in the operation and maintenance o f long-distance high voltage D C and A C transmission system. The O&M contract will start fol lowing the completion o f the rehabilitation and reinforcement o f the existing transmission corridor from Inga to the border with Zambia, and will run for a period o f about five years. The main objective o f this component i s to train and transfer know-how to the staff o f SNEL in modern methods and techniques o f a l l aspects o f operation and maintenance o f the SNEL high voltage transmission system. More details about this component are given in Annex 12.

Component 10 - Social and Environmental Component (US3.42 million)

2 1. This component comprises four main subcomponents as follows:

22. Sub-Component 1 (US$0.52 million): for the update of the earlier Environmental and Social Impacts Assessment study completed in 2002 for the original project to assess any additional changes on the ground that would warrant further mitigation measures under the Project to be undertaken. The update i s to cover also the Resettlement Action Plan (RAP), and the Compensation Action Plan (CP) for the project affected population in DRC.

23. Sub-Component 2 (US0.4 million): HIV/Aids Awareness Campaign to educate the Project Affected Population and the communities along the length o f the high voltage transmission system about the prevention, including the distribution o f condoms, and information on where infected persons can go for counseling support and treatment. The activity will be linked with already established systems at state, provincial and local levels for the continuation o f educating, counseling, and treatment for infected persons.

24. Sub-Component 3: Social and Environmental Mitigations - Resettlement and Compensation (US$1.8 million) -This comprises the implementation o f RAP and the CP for the construction o f housing and related social infrastructure for the population to be relocated from the rights-of-way o f the new transmission lines to be constructed in DRC, as well as the payments o f compensation for crops, land and other movable property in the rights-of-way acquired by SNEL (However, cash compensation, land acquisition and other resettlement aid paid in cash will not be financed by IDA, unless a special authorization i s previously granted in accordance with Annex A o f BP 6.00 on Bank Financing).

25. Sub-Component 4: Monitoring and Oversight of Implementation of Environmental and Social Mitigation Measures (US$0.7 million) for the services o f an international N G O to

50

assist in the supervision and provide oversight o f implementation o f the RAP and the CP to ensure success o f implementation o f the RAP and the CP.

Component 11 - Community Development (US6.45 million)

26. The component comprises the provision o f social infrastructure for a population o f about 700 families in seven villages - Ngubu, Mutaka, Kapemba, Bungu-bungu, Nsatumbe, Ntumbwe, and Nshinga - along the high voltage transmission corridor in the Katanga Province. It will cover the construction o f schools and the provision o f basic school furniture, construction clinics and the supply o f basic medical equipment, including beds, and six months supply o f basic medicines, water supply and sanitation systems, and electricity supply. The sub-components are:

Sub-component 1: Construction o f the schools and medical centers in the villages.

Sub-Component 2: external water supply for the schools and clinics to be constructed under sub-component 1.

Construction o f the water wells for the seven villages and the separate

Sub-component 3: medical centers.

Supply and delivery o f medical equipment and furnishing for the new

Sub-Component 4: Supply and Delivery o f the furnishing for the schools.

Sub-Component 5: Supply and installation o f l ow voltage distribution lines for electrification o f the seven villages.

Sub-Component 6: Supply and delivery o f six months stock basic medicines, certified by the appropriate governmental authority, to the medical centers in the seven villages.

Component 12 - Institutional Strengthening and Capacity Building of Project Implementation Unit - UGP (US% 7.9 million)

27. This i s to strengthen the capability and capacity o f UGP in the areas o f procurement, project implementation supervision and management for the successful execution o f the Project. It will provide overseas training as well as o n the job training with the support o f the engineering consultant, participation in inspections and factory acceptance tests o f equipment for the Project at manufacturers’ premises. It will also provide tools and equipment, including vehicles, office furniture, computers and communication equipment, and a modem management information system, and will also cover the operating cost o f UGP. The sub-components are:

Sub-component 1 (US%1.5 million) - Installation o f a modern management information system;

Sub-Component 2: (US$1.65 million) - Supply o f equipment, tools, vehicles and logistics;

Sub-Component 3 (US%1.3 million) - Training, including participation in inspections and factory acceptance tests o f equipments for the project in manufacturers factories oversees.

Sub-Component 4 (USS3.45 million) - Operating cost o f UGP

Component 13 - Advisory Services (US%5.55 million)

5 1

28. the engineering and implementation supervision services. The sub-components are:

This component covers the technical assistance sub-components o f the project other than

Sub-component 1 (US$ 2 million): for the services o f an international specialized consultant to (i) design the technical, contractual (shareholders’ agreement, transactions agreement), and businesdeconomic aspects o f the commercialization contract o f the excess capacity, (ii) assist SNEL to recruit an internationally private world class private operator for the commercialization o f the telecommunication excess capacity under Open Access regime, and (iii) drafting the necessary interconnection legal and regulatory as wel l as the commercial arrangements to support Open Access.

Sub-Component 2 (US2.45 million): Procurement o f assistance o f BCECO to UGP. It will finance the salaries o f assigned BCECO staff (excluding c iv i l servants), contribution to payment o f office space for BCECO staff, publication o f procurement notices, procurement o f office equipment, and other related expenses in the provision o f the services to UGP.

Sub-Component 3 (US% 0.60 million): for audits o f the project accounts.

Sub-Component 4 (US0 .5 million): foreign consultancy services to assist SNEL in export contract negotiations.

Component 14 - Establishment o f Letters of Credit (US%10 million) - to cover commercial bank charges and associated costs for the establishment o f Letters o f Credit on behalf o f the Contractors for the supply o f imported equipment and materials for the project

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ANNEX 4: ADDITIONAL DETAILS ON THE TELECOMMUNICATION COMPONENT

Strategic Context and Rationale

29. The electronic communications and ICT sectors in the Democratic Republic o f Congo (DRC) seriously lag global and regional peers. The “Digital Opportunity Index” produced by the International Telecommunications Union (ITU) ranked DRC 150th in 2005 falling to 176‘h in 2006’ illustrating the continuing relative decline o f the country. Major issues in DRC are the absence o f a national telecommunications backbone and an efficient and capable operator to provide such services. As a consequence traffic between cities and internationally are carried by satellite, which i s expensive and i s o f limited capacity and within DRC the level o f connectivity i s very low and disjointed, together impeding the roll out o f ICT applications and services.

30. This state o f affairs i s a serious bottleneck to the effective management o f the SNEL power distribution, the functioning o f the power pool and the users o f electronic communications. Access to broadband infrastructure along the route o f the SNEL Southern African Power Pool facility will go a long way to addressing the electronic communications bottlenecks in DRC. Access will improve the effectiveness o f , the prospects for decentralization and the level o f security, while removing the constraints on the contribution o f ICT to economic growth and competitiveness as well as to improving the quality o f l i f e in general. This wi l l be achieved by providing broadband access to telecommunications operators (fixed and mobile), broadcasters, service and application providers. The broadband infrastructure o f SNEL wi l l replace the limited and expensive satellite connections, extend the reach and capacity o f electronic communications networks and increase quality.

Project Description

31. The project includes the installation o f the OPGW telecommunication system to be owned by SNEL. The OPGW i s vital to both the national and regional aspects o f the overall project. The OPGW provides broadband capacity along the 2,300 km length o f the HV transmission network from Kinshasa to Kasumbalesa at the border with Zambia, which then connects to the equivalent in Zambia and to that o f the SAPP. The broadband OPGW allows SNEL to manage, monitor and maintain power distribution in an effective and efficient real time manner. Further, the broadband OPGW will facilitate electronic trading o f energy within the regional power pool in a more speedy and efficient manner than traditional trading using international voice telephony infrastructure. SNEL has received an authorization from the telecommunications regulatory authority (ARPTC) to operate an ‘independent network’ for these purposes (ARPTC Decision n”03 3/ARPTC/CLG/2008). Consequently there are no regulatory authorization concerns regarding SNEL’s internal communication requirements.

Commercialization o f Excess Fiber Optics Capacity

32. The OPGW comprises 24 pairs o f optical fiber in one cable. As a consequence the project wi l l install more fiber optics capacity than that strictly required by SNEL’s internal communications requirements. The OPGW has two parts:

’ World Information Society Report (2006 and 2007). 53

0

0

Part A which will be dedicated capacity for the internal communications needs o f SNEL for i t s power operations and with the SAPP system. Part B which i s the capacity in excess o f the requirements o f Part A.

33. The commercialization o f part B will produce revenue streams for SNEL. Capacity in Part B will be offered on a commercial for prof i t basis to third parties where it would be able to support a large range o f additional electronic communications services such as:

0 Electronic communications for private and public customers, including access for the incumbent fixed operator (OCPT), mobile operators, large corporations and public institutions. International connectivity v ia Zambia and the Power Pool. Distribution o f public and private radio and television.

0

0

Regional Integration Potential o f Excess Fiber Optics Capacity

34. The OPGW o f SNEL will connect to that o f its partners in the SAPMP in Zambia and South Africa with the potential to connect to undersea cables and global telecommunications networks. SAPMP may act as a catalyst or an important connected component o f additional regional infrastructure projects which would radically change the I C T potential o f Central and Southern Africa. These are:

0

The World Bank supported Central African Backbone Project (CAB) which could link to Part B from the North. The World Bank Regional Communications Infrastructure Program (RCIP) which could link to Part B from the East and for which DRC is eligible to apply. The West African Festoon System (WAFS) o f undersea cables along the West Africa Coast which could link to Part B from the West under the current financed Project to link Muanda to Kinshasa.

Outcome and indicators

35. The potential outcome and benefits o f utilizing the Part A capacity will be in the efficient operation and monitoring and control o f the electric power transmission facilities resulting in greater reliability, security and cost efficiencies. Load management, control, monitoring, and wheeling o f power over long distances and across multiple regional networks will be made possible by a widely distributed computer system (e.g. SCADA system) interconnected by high quality fiber optics.

36. The benefits o f commercializing Part B will f low from various I C T applications for the private, public, household and business sectors and in revenues streams for SNEL. Part B will be offered on a commercial for-profit basis to third parties where it would be able to support a large range o f additional electronic communications services and improve regional integration.

37. When the regional networks are connected, broadband and global infrastructure will become widely available in several contiguous countries offering converged services which would generate new economic activities, communications and trading patterns.

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38. component:

The fol lowing are the expected targets to be achieved by the telecommunication

Commercializatioflreparation

0 Adoption by DRC o f the I C T Policy Strategy currently under preparation supported by the “Comp,etitiveness and Private Sector Development” Project and drafting o f supporting legal and regulatory instruments. Contracting o f the consultant to conduct the Component 13 - Sub component 1. Appointment o f the world class Private Operator for the operation, management, and commercialization o f the Part B capacity under Open Access regime, after acceptance and approval by the Beneficiary o f the commercialization model.

0

0

Part A Capacity 0 Reliability and availability (e.g. 99.999%) o f the control, monitoring, and load

management systems (e.g. the SCADA system).

Part B Capacity 0 N e w annual revenues (fees, royalties, etc.) generated by SNEL related to the

commercialization o f the Part B capacity. 0 Volume o f national traffic carried (bandwidth) as a result o f the commercialization o f the

Part B capacity.

Regional Integration 0 Volume o f international national traffic carried (bandwidth) as a result o f the

commercialization o f the Part B capacity. 0 Average price o f international telecommunications traffic carried (bandwidth) (per

minute or Mbps)

Implementation

39. Implementation o f the telecommunications components (described below) will be consistent with the overall project implementation. Given that SNEL does not have the capacity to implement a complex OPGW telecommunication system, needed expertise will be provided by the Project Engineer supported adequately by the back-stop head office experts.

Component 1 - Supply and Installation o f OPGW

40. The telecommunications component (Contract #5) o f the project i s for the design, supply and installation o f the OPGW by SNEL along the 2,200 km length o f the HV transmission network between Inga, Kinshasa, Kolwezi and Kusumbalesa, connecting to the equivalent in the SAPMP. The OPGW will consist o f 24 pairs o f optical fiber, o f which 3 to 4 pairs (Part A capacity) will be used by SNEL for i t s internal needs to manage, monitor and maintain power distribution in an effective and efficient real time manner. The remaining fiber capacity (Part B capacity) will be made available for commercialization.

41. The complete system will replace the inoperative PLC system on the H V D C line, which never operated properly and i s now completely out o f service. The new telecommunication system will allow SNEL the connection and communication between the new network centers in

55

Kinshasa and Likasi and o f course enable the proper operation o f the rehabilitated converter stations at Inga and Kolwezi. The total estimated cost o f this component i s US$40.8 million. The bidding for the various contracts i s on-going.

Component 2 - Technical Assistance Building Blocks for Commercialization (US $2.0 million)

42. N o later than December 30, 2009, SNEL should appoint a consultant for the design and implementation o f the Private Operator Contract, including the procurement process. This will entail accessing business models to enable SNEL to enter into an appropriate commercial relationship with private investors via a competitive tender. Certain regulatory issues must be addressed and coordinated with other TA provided to DRC to enhance investor and regulatory certainty across the sector.

43. Commercialization o f excess capacity embedded in power transmission has been tried and tested in many projects resulting in a wide range o f outcomes. There are r isks that the full benefits, national and regional, o f the telecommunications component may not materialize. Essentially, many o f the outstanding issues and risks can be mitigated by a well structured and comprehensive technical assistance program financed either by the program or other sources o f funding or technical assistance programs that may be available. Two current Bank projects: the PSD Competitiveness Project and the National ICT Strategy Technical Assistance are currently addressing ICT regulatory issues both regarding the regulatory environment and capacity building in the Regulator in DRC. These projects should produce results by the time the OPGW i s commissioned in DRC.

44. Part B wi l l remain under the ownership o f SNEL. A private world class operator wi l l commercialize excess capacity under Open Access regime. This world class operator will be responsible for additional investment, day-to-day management, commercialization, operation and maintenance o f Part B. The business modalities for these networks share common principles and are sometimes the subject o f Special Purpose Vehicles (SPV). SNEL has no interest in commercializing Part B itself. Commercialization will be undertaken by applying the principles o f “open access”. Two business models each involving private investors responsible for the day- to-day management, commercialization o f capacity, operation and maintenance o f Part B may be considered

0 A Joint Venture with all additional investment and other costs and related returns being funded and shared by participants.

0 A long term lease o f Part B to private investors who fund all additional investment and other costs in return for which SNEL will receive fees and/or a share o f gross revenues or profits6.

45. Commercialization o f Part B will require enhancement o f the communications regulatory environment, instruments to provide greater regulatory certainty and improved investor confidence. In DRC state owned telecom operator OCPT holds temporary exclusive rights to

For example, the Power Holding Company o f Nigeria (PHCN) granted a long term concession on 8 o f 12 pairs to 6

Phase 3 Telecom in Nigeria to equip the fiber and operate the network. Phase 3 paid $100 million for concession plus 2.5% o f gross annual revenues to PHCN as a royalty for the right to use the fiber.

56

“national backbone” raising the possibility that Part B i s such “national backbone”. OCPT i s currently facing serious challenges and has no experience o f this business or sufficient funds for investment. Moreover, the telecommunications law (No. 013 of 2002) at Art 12 allows the State v ia the telecommunications regulator to authorize another operator to install and exploit part of the “national backbone”.

46. In terms o f competition policy, the operator o f Part B may be deemed to hold a potential ‘dominant position’, and therefore must be regulated to mitigate the r isks o f unreasonable charges and conditions of use. The maximum developmental contribution will be derived where al l customers are treated in a non-discriminatory and transparent manner at reasonable costs. These principles, known as “open access”, facilitate market entry and a thriving sector. Consequently there is a need to protect customer interest by regulatory means. The above matters are also pertinent to other potential infrastructure projects. Therefore a clear, transparent and coordinated national and regional access and interconnection regime will need to be elaborated and implemented.

57

ANNEX 5: DESCRIPTION OF THE REGIONAL AND DOMESTIC POWER MARKETS DEVELOPMENT PROJECT

(PMEDE) (Phase APL-lb) and o f the Inga 1 and 2 Rehabilitation Component Democratic Republic o f Congo: Southern African Power Market Project (SAPMP) - APLl


A. INTRODUCTION, PROJECT DEVELOPMENT OBJECTIVE

1. In May 2007, the Board approved a grant o f US$296.7 million equivalent for the implementation o f the PMEDE Project estimated at appraisal to cost US$499 million. Other financiers were the European Investment Bank, the African Development Bank, and SNEL (DRC's power utility).

2. The development objective o f the PMEDE Project i s to improve the operational efficiency o f the electricity sector and expand generation, transmission and distribution capacity in order to better serve domestic power demand and to support regional market integration.

B. PROJECTCOMPONENTS

3, The PMEDE Project consists o f five components as follows:

Component 1 : Generation (US$226.7 million): Rehabilitation o f the hydroelectric facilities at Inga, including civil works on the intake canal to improve the water flow through the plant and rehabilitation o f the turbines to increase the operational capacity and reliability o f the Inga 1 and 2 plants from i ts current level o f about 700 MW to about 1300MW o f reliable production.

0 Component 2: Transmission (US$93.8 million): Construction o f a 400 KV Inga- Kinshasa transmission line. The commissioning o f the second l ine complements the existing 220 kV IngdKinshasa transmission line, relieving the current saturation o f the existing line and thereby improving the security o f transport o f power from Inga to Kinshasa, as well as increasing the amount o f power that can be delivered to the capital Kinshasa.

0 Component 3: Distribution (US$88.5 million): Expansion and strengthening o f the distribution system in Kinshasa, including the acquisition o f low voltage cables and transformers, the extension o f the grid into currently un-electrified areas o f Kinshasa and the connection in these areas o f a total o f 50,000 new customers.

0 Component 4: Capacity Building; and Governance (US$41.2 million): This component comprises two subcomponents:

o Subcomponent (a): Strengthening SNEL's operational capabilities, notably in billinglcollection activities, planning and maintenance. The component also finances capacity building activities (in finance and other areas) designed to enhance governance within the utility specifically and in the sector generally.

58

o Subcomponent (b): Strengthening the Ministry o f Energy's capacity to develop and implement sector reform and to support the further development o f the Inga site.

0 Component 5: Proiect Execution (US$48.8 million) including project preparation activities. This component supports the effective implementation o f the Project's activities, in an environmentally and socially sound manner, including appointment o f supervisory engineering consultant, environmentalhocial consultants and o f a Procurement Financial Management Agent (PFM).

C. DETAILED DESCRIPTION OF THE ACTIVITIES RELATED TO THE REHABILITATION OF THE GENERATION FACILITIES AT INGA 1 AND 2 (US$226.7million, of which UW198.3 million equivalent financed by IDA and US$28.4 million by other sources)

4. There i s a total o f 14 units at Inga 1 and 2, o f which 6 turbines at Inga 1 , with nameplate capacities o f 55 M W each, and maximum capacities o f 58.5 M W (total max. capacity at Inga 1 i s 351 MW) and 8 turbines at the Inga 2 plant (separated into two groups o f four, entitled 2A and 2B), each with nameplate capacities o f 162 and maximum capacities o f 178 M W (total max. capacity at Inga 2 i s 1,424). The total nameplate capacity at the two plants i s 1626 M W and the total maximum capacity i s 1775 MW. The plant i s operating nearer to 700 MW, as a result o f poor maintenance and some questionable design choices, with significant intermittent reductions as a result o f low reliability. Production capacity at the Inga plant i s limited by turbines that no longer function and other factors such 'as siltation and rock formations that limit the water flow through the intake canal.

5. In order to address these issues, the PMEDE Project plans to rehabilitate the turbines and other installations at the Inga 1 and 2 plants to make available about 1300MW o f reliable production. In addition, in order to achieve a production capacity o f about 1300 MW, the canal needs to be re-profiled and dredging undertaken. The PMEDE plans to finance rehabilitation works for the turbines and related facilities at Inga 1 , for the turbines and related facilities at Inga 2A and the canal dredging and reprofiling.

6. The rehabilitation work and canal re-profiling i s expected to increase production capacity at the Inga site by about 600 MW, from about 700 MW to about 1300 MW, and to improve i t s reliability. The increase will be incremental, averaging about 150 M W per year beginning end 2009 through end 2015. Given the run-of-river quality o f the Inga site and the hydrological conditions, each incremental M W can be expected to generate 6132 MWh, assuming a 70 percent plant load factor.

D. IMPLEMENTATION STATUS OF THE GENERATION COMPONENT OF THE PMEDE PROJECT (REHABILITATION OF INGA 1 AND 2)

7. In May 2008 and in view o f the increase in unit costs, a cost update was provided by the Consulting Engineering to the , SNEL and the Bank. It showed that: (a) the rehabilitation costs o f the Inga 1 and 2 facilities did significantly increase; (b) the condition o f the generating units was also worse than initially assessed; and that (c) an emergency program for generation was required to implement very quickly a series o f measures to maintain the generation at the current

59

level. Furthermore, some actions initiated under the PMURR program (such as the rehabilitation o f unit G12 at Inga 1) would not be completed through the PMURR program mainly because o f a lack o f funds, and should be incorporated in the PMEDE project.

8. In addition, particularly in view o f the higher cost estimates, i t was decided that a comprehensive rehabilitation strategy covering the 14 units o f Inga 1 and 2 should be developed to form the basis o f a coherent action plan, integrating the operating constraints (the plants need to be kept operating to provide for the electricity needed in Kinshasa and in the Bas-Congo and also in the Katanga region, and only 2 units can be dismounted at any time at Inga 1 and at Inga 2) within which public and private financing could participate. Such rehabilitation program covering the 14 units i s provided below.

Figure 1: Inga 1 and 2 Rehabilitation Program

800

700 L cl I PMEDE

9. documents, bidding, physical rehabilitation, testing, etc.) would take till 2020.

I t shows that completion o f the rehabilitation program (including preparation o f the bid

10. Total financing required including the initial emergency program, the rehabilitation o f the Inga common facilities (substation, dredging, intake canal reprofiling, civil works, etc. ) would be about US$547 million (see table 1). Based on the existing and potential financing from the Donor Community (such as PMEDE Additional Financing) this should allow the implementation o f the Emergency program, the rehabilitation o f the common facilities, and the rehabilitatiodmajor overhaul o f 9 o f the 14 units (G12, G27, G21, G14, G28, G22, G25, G11 and G23) as indicated in figure 1 over the 2009-2015 period. To complete the program about $180 million wi l l s t i l l be needed for the 2015-2020 period. One private company i s currently negotiating with SNEL the financing o f the rehabilitation o f 2 units costing about $50 million.

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Table 1: Inga 1 and 2 Rehabilitation - Revised Costs Estimates

Sub-Component Emergency Rehabilitation

Costs (US$ million) 27.0

Progrim Rehabilitation o f common

I facilities I I 36.5

Dredging Intake canal reprofiling Rehabilitation o f the 14 generating un i t s

43.2 22.3

418.0

E. REHABILITATION OF INGA 1 AND 2 - IMPLEMENTATION STRATEGY

Total Financing for generation activities

9 PMEDE (Available)

Financing (Potential) 9 PMEDE Additional

11. The rehabilitation o f the 14 Inga un i t s w i l l take 10-12 years (figure 1); the proposed implementation strategy i s described below.

547.0

226.7 120.0-$140.0

To address priority generation issues at Inga 1 and 2, an emergency program o f $27.0 million has been delineated. A major overhaul o f unit G23 (160 MW) i s near completion, financed by the private sector. The units should be back on stream in March 2009. Unit G12 (55MW) has been rehabilitated through the PMURR program. The main parts are back to DRC and should be reinstalled starting April 2009, with restarting expected by September 2009. For the other units, the rehabilitation strategy i s based on the following criterias: (a) priority should be given as much as possible to un i t s that are currently not operating; (b) as there i s a financing constraint, the least expensive unit ( $ k W rehabilitated) should be rehabilitated first; and (c) only 2 units in each o f the 2 power plants can be rehabilitated simultaneously.

12. In order to optimize the procurement strategy, the following principles have been discussed between SNEL and the Consulting Engineer: (a) As there i s only a limited number o f specialized contractors as regards the generating units, post-qualification should be the preferred procurement method; and (b) constructiodrehabilitation o f the wheels i s on the critical path; preparation o f tenders, tendering, ordering, for these equipments etc. should therefore be made as soon as possible.

1 Unit I Power I Launch I Award I Complete 1 Duration I Estimated Cost 1 Comments I Plant 1 Bid. Doc. [ Contract I Work 1 (month) I U S $ million I

G12 I Inga 1 I N/A I Sep.2009 1 Jul.2010 I 10 I 5.85 I Parts were procured I underPWR

G27 I Inga 2B I Mar. 2010 1 Nov. 2010 I Nov. 2012 1 24 I 26.20 I Units 27,28 and 25 are I in a single contract.

G21 I Inga2A I Sep. 2009 1 Jun. 2010 1 Jan. 2014 I 42 I 54.45 I Units 21 and 22 are in a I I I I I I I I s ingle contract. I

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G14

G28

I I I

G26 Inga 2B Jun. 2014 Apr. 2015

Inga 1 Sep. 2009 Jul. 2010

Inga 2B Sep. 2009 Nov. 2010

G15 Inga 1 Jun.2014 May2015

G24 Inga 2A Sep. 2014 Jul. 2015

G23 Inga 2A Sep. 2014 Nov. 2016

G16 Inga 1 Jun.2014 Feb.2017

G13 Inga 1 Jun. 2014 Nov. 2018

Jul. 2012 24

May2014 24+ 18

24.80

27.30 In order to maintain

Units 11 and 14 are in a single contract.

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ANNEX 6: SUMMARY STATUS OF THE MAIN CONTRACTS


Contract

1 . Rehabilitation and modernization of inverter and converter substations at Inga and Kolwezi

2. Rehabilitation and reinforcement of high voltage substations

3.Supply and installation o f new high voltage transmission lines

$.Rehabilitation of existing HVDC and HVAC xansmission lines

Estimated cost

(us $ Million)

142.08

47.02

75.78

22.36

Procurement Status

Following agreement of the Bank to the recommendations o f the Borrower, and its panel o f experts on Stage 1 Technical Solution o f ABB AB, the Stage 2 price bid was submitted by ABB AB to the Borrower on July 4,2008. Following the review by the Bank o f the Evaluation Report submitted subsequently by the Borrower, the Bank’s agreement, communicated to the Borrower on January 29,2009, to the Borrower’s recommendation for award of the contract to ABB AB, and to invite ABB for contract clarifications meeting to close on two relatively simple outstanding issues, and to initial the Contract. However, due to the significant changes that have been introduced in the contract and accepted by the Borrower at the clarification meeting communicated to the Bank on April 7,2009, the Bank was not in the position to agree to the Borrower’s recommendation to s i g n the contract with ABB. The changes introduced in the contract are: change o f the bid price and elimination o f the price adjustment formula provided in the bidding document. The Bank has recommended to the Borrower to: (i) request the bidder to maintain its bid price unchanged; (ii) to maintain the starting data o f application o f the price and post formula as stated in the bidding documents; and (iii) for the issue regarding the structure of the price adjustment formula be discussed firther, based on additional detailed due diligence, to come to closure on the matter. Subject to the acceptance o f the Borrower and the Contractor to the above, the contract could be signed by end- June 2009. ‘

Contract signed on October 2,2008. Effectiveness procedures to be completed by July 15,2009.

Contract signed on September 29,2008. Contract effectiveness procedures to be completed by May 26,2009. subject to the establishment of the Letter of Credit, the only outstanding condition for the contract effectiveness.

Bidding failed due to inadequate technical information in the bidding document and resulting in non-responsiveness of the single bid received. Detailed technical studies to begin June 2009 and completed in September 2009 to establish more clearly the requirements to be incorporated in the bidding document for retendering of the Contract. Retendering o f

63

5. Supply and installation o f optical fiber cable and associated telecommunications equipment

6.45 6. Supply and installation o f social infrastructure

Bidding failed to attract interest mainly due excessive complexity o f a single contract encompassing different activities beyond the capability o f local contractors to execute. Original contract has been split into 6 separate contracts to be re-tendered separately to enable greater local participation. A l l contracts expected to be awarded in August.

rehabilitation works to be completed with contract award in June 20 10.

40.8 Bidding failed due an excessive price offer by a single bidder in a non-competitive environment. Procurement i s to be done through three separate contracts for economy and effectiveness as: (i) supply and delivery o f the optical fiber cable; (ii) installation service for the optical fiber cable on power transmission towers; and (iii) supply and installation o f the electronic telecommunications equipment. A l l contracts to be procured through international competitive tender with post-qualification criteria. Bids issued, pre-bid conference done on January 30,2009. Bid submission date extended to May 14,2009 from April 4,2009 due to changes introduced in the bidding documents following the pre-bid conference. Contract award now expected about AugustBeptember 2009.

64

ANNEX 7: SUMMARY OF IMPLEMENTATION SCHEDULE OF THE MAIN CONTRACTS

Year 2009 2010 2011 Quarter 1 2 3 4 1 2 3 4 1 2 3 4 Contract

Democratic Republic of Congo: Southern Af. Power Market Proj. (SAPMF')-APLl Additional Financing

2012 1 2 3 4

Contract Signature and Effectiveness Construction Period Completion

1. Contract # I-Rehab ofthe DC System Contract Signature and Effectiveness Construction Period Completion



2013 1 3 4 5

65

ANNEX 8: REVISED PROJECT COST ESTIMATE BY COMPONENT Democratic Republic o f Congo: Southern African Power Market


Contract or Project Component

1 Rehabilitation of the converter stations (HVDC) Turnkey contract -base cost

Rehabilitation o f the 220 kV Substations

Turnkey contract - base cost

Turnkey contract -base cost

2

3 Supply and Installation of new 220 kV Lines

4 Rehabilitation of Existing Trans. Lines Turnkey contract - base cost

5 Supply and Installation of Telecom. Equipment Total - base cost

6 Engineering and Construction Supervision

7 Additional Transmission L i n k Luano to Kasumbalesa

8 Study of the state of the existing Transmission Lines

9 Operation & Maintenance of Transmission Assets i) Consultancy Services ii) Start-up Cost iii) Equipment and Tools

subtotal Component 9

10 Social and Environmental Component i) Update of the Environmental & Social Impact Study ii) HIV Awareness Program iii) Social and Envir. Mitigations (housing & compensation) iV) Monitoring and Overview of Env. & Safe Guard Plan


11 Community Development Component for affected people i) Construction of Schools & Med. Centers ii) Const. o f Water Wells & Water Syst. in Bldg. iii) Suppy & Delivery o f Medical Equip.& Fumshings iv) Supply and Delivery of furnishings for Schools v) Supply & Installation o f electricity dist.system

vi) Supply o f medicines for six month Contingencies

sub-total Component 11 12 Institutional Strengthening and Capacity building

i) M I S for UGP ii) Reinforcement of UGP - Equipment & Logistics iii) Training of UGP Staff iv) UGP Operating Cost

sub-total Component 12

13 Advisory Services i) TA for the Fiber Optic Operator Contract ii) Procurement Services by BCECO ili) Establishing Accounts for Exports & Audits iV) Export Contracts Negotiations


14 Cost of Establishing Letters of Credit

Total Project Cost Base Cost Physical Contingency Price Contingency

TOTAL COST

Estimate Local

6.43

2.06

6.75

6.63

5.56

1.65

1.80

0.30

0.10 0.30 2.50

2.90

0.05 0.40 1.80 0.07 2.32

1.20 0.50 0.05 0.16 0.08

0.26 2.25

0.17 0.13 3.45 3.75

2.45

2.45

44.84 2.16 2.25

cost (US Foreign

122.14

39.05

60.71

12.37

29.17

14.81

16.20

2.70

0.90 2.70

22.50 26.10

0.47

0.63 1.10

1.30 0.50 0.20

0.20

1.20 0.80 4.20

1 s o 1.49 1.17

4.16

2.00

0.60 0.50 3. I O

10.00

345.79 17.83 17.13

380.75

million) Total

128.57

41.10

67.45

19.00

34.73

16.45

18.00

3.00

1 .oo 3.00

25.00 29.00

0.52 0.40 1.80 0.70 3.42

2.50 1 .oo 0.25 0.16

0.28 1.20 1.06 6.45

1.50 1.65 1.30 3.45 7.90

2.00 2.45 0.60 0.50 5.55

10.00

390.62 19.99 19.38

430.00

ANNEX 9: COMPARISON OF REVISED COST ESTIMATE AND IN IT IAL Democratic Republic o f Congo: Southern African Power Market Project (SAPMP) - APL l


Clost Estimate at Appraisal Project Component

Current Cost Estimate I D i k z i c e

1 Rehabilitation and Reinforcement of Inverter/Converter Stations (HVDC)

2 Rehabilitation and Reinforcement of High Voltage Substations

3 Supply and Installation o f new 220 kV Transmission Lines

4 Rehabilitation o f Existing Transmission Lines

5 Supply and Installation of Optical Fiber Telecommunications System

6 Social and Environmental Component

7 Engineering and Construction Supervision Services

8 Engineering Audit of Existing Transmission Lines

9 Operation and Maintenance of Transmission Assets

10 Institutional Strengthening and Capacity Building

11 Advisory Services

12 Cost o f Letters o f Credit

Sub-total DRC

Luano - Kasumbelasa Transmission Line - Zambia

TOTAL

( U S $ million )

64.83

23.87

62.8

4.75

11.36

4.40

9.36

0

1.86

2.38

0.52

0

186.13

9.7

195.83

142.08

47.02

75.78

23.31

40.88

9.87

17.6 1

3 -00

29.00

7.90

5.55

10.00

412.00

18.00

430.00

77.25

23.14

12.98

18.57

29.5 1

5.47

8.24

3 .OO

27.14

5.52

5.03

10.00

225.87

8.30

234.17

67

ANNEX 10: PROJECT FINANCING BY CONTRACT AND FINANCING AGENCY Democratic Republic o f Congo: Southern African Power Market Project (SAPMP) - A P L l


Contract or Project Component

1 Rehabilitation of the converter stations (HVDC)

2 Rehabilitation of the 220 kV Substations

3 Supply and Installation of new 220 kV Lines

4 Rehabilitation of Existing Trans. Lines

5 Supply and Installation of Telecom. Equipment

6 Engineering and Construction Supervision

7 Additional Transmission Link: Luano to Kasumbalesa

8 Study of the state of the existing Transmission Lines

9 Operation & Maintenance of Transmission Assets i) Consultancy Services ii) Start-up Cost iii) Equipment and Tools


10 Social and Environmental Component i) Update of the Environmental & Social Impact Study ii) HIV Awareness Program iii) Social and Envir. Mitigations (housing & compensation) iv) Monitoring and Overview of Env. & Safe Guard Plan

11 Community Development Component for affected people sub-total Component 10

i) Construction of Schools & Med. Centers ii) Const. of Water Wells & Water Syst. in Bldg. iii) Suppy & Delivery of Medical Equip.& Furnshings iv) Supply and Delivery of furnishings for Schools v) Supply & Installation o f electricity dist.system


12 Institutional Strengthening and Capacity building i) MIS for UGP ii) Reinforcement o f UGP - Equipment & Logistics iii) Training of UGP Staff iv) UGP Operating Cost

sub-tota1,Component 12

13 Advisory Services i) TA for the Fiber Optic Operator Contract ii) Procurement Services by BCECO iii) Establishing Accounts for Exports & Audits iv) Export Contracts Negotiations


14 Cost of Establishing Letters of Credit

TOTAL COST & FINANCING PLAN

Total cost

142.08

47.02

75.78

23.31

40.88

17.61

18.00

3.00

1 .oo 3.00

25.00

29.00

0.52 0.40 1 .80 0.70

3.42

6.45

1.50 1.65 1.30 3.45

7.90

2.00 2.45 0.60 0.50

5.55

10.00

430.00

Financing Plan (US $ million) IDA* SNEL EIB CEC Total

141.38

75.02

22.50

40.22

17.34

3.00

0.99 3.00

24.63

28.57

0.52 0.34

0.69

1.55

6.11

1.50 1.63 1.30 2.45

6.88

2.00 2.45 0.60 0.50

5.55

10.00

0.70

0.76

0.81

0.65

0.26

0.02

0.38

0.43

0.06 1.80 0.01

1.87

0.34

0.02

1 .oo 1.02

142.08

47.02 47.0;

75.78

23.31

40.88

17.61

18.00 18.0(

3.0C

1 .OC 3 .OC

25.0(

29.0C

0.52 0.4C 1.8C 0.7C

3.42

6.45

1.5C 1.65 1.3C 3.45

7.90

2.00 2.45 0.60

5.55

10.00

osa

358.12 6.86 47.02 18.00 430.00

YO of Total 83.28 1.60 10.93 4.19 100.00

68

ANNEX 11: ORGANIZATIONAL ARRANGEMENTS FOR SUPERVISION OF IMPLEMENTATION

Democratic Republic o f Congo: Southern Afr ica Power M a r k e t Project (SAPMP) - APLl Addit ional Financing

2 ENVWHEH E N T I U S E 5 2 SOCWLOGUES

69

SITE 2 DE KINSHASA - K I ~ ~ ~ W ~ DCC

INOENEUR DE PROJET DE REHABILITATtON (SITE f CE LIKASI)

I 1 i $ r I !

' * ..*

I 1

t tB0 LMNE C t INOA LOANCIE

9 CWVFFEVR !

W E 3 LlKABl REH

70

ION DES NOUVELLES LiGNES

f...

1 t - i'

71

ANNEX 12: ARRANGEMENTS TO ENSURE SUSTAINABILITY OF PROJECT OUTPUT

Democratic Republic of Congo: Southern African Power Market Project (SAPMP) - APLl Additional Financing

1. To ensure the sustainability o f the project’s output following i t s completion, actions will be required on two fronts:

e o f SNEL’s high voltage transmission assets over the long-term; and

Establishment o f a comprehensive system for state o f the art operation and maintenance

e telecommunication operator o f the excess OPGW telecommunication capacity.

Commercialization as a business venture through the services o f an experienced private

Operation and Maintenance o f SNEL’s High Voltage Transmission Assets

2. Given SNEL poor track record with operation and maintenance (O&M), project sustainability, following the rehabilitation o f the transmission system, depends critically on the design and implementation o f arrangements that ensures that: (a) adequate financial resources are available to SNEL; as wel l as: (b) access to technically experienced staff empowered to carry out operation and maintenance activities on the transmission network and al l SNEL’s assets. With a view to guarantee the reliability and technical efficiency o f the transmission system to deliver power to large high voltage consumers (such as the mines), to the SAPP, as well as to DRC other consumers, GoDRC and SNEL have agreed to: (a) set-up mechanisms to prepare, follow-up and finance the implementation o f SNEL’s annual Operation and Maintenance Program; and in particular, to: (b) contract the Operation and Maintenance o f SNEL transmission system to an internationally experienced operating power utility for a period o f at least five years, that will also train and transfer know-how to the staff o f SNEL. The scope o f the O & M contract and the mechanisms to fund and implement SNEL’s overall O & M program are described below and will be included in the Project Agreement.

A. ScoDe o f the ODeration and Maintenance (O&M) Contract

3. The O & M contract will cover al l SNEL’s high voltage transmission network. Presently, SNEL classifies al l network voltages above 50 kV as high voltage transmission. The O & M services will cover the H V D C system from Inga to Kolwezi, including the converter and inverter stations, the A C system from Kolwezi to Kasumbalesa at the border with Zambia, including the lines to be constructed under the project; the existing Inga-Kinshasa 220 kV l ine and substations, as well as the new 400kV Inga-Kinshasa line and substations to be constructed under the PMEDE, and al l the existing 50kV - 220kV networks throughout the country. As new additional transmission lines and substations are added, the resources to ensure effectiveness o f the O & M services will be increased commensurately.

72

B. Contractual arrangements

4. A private operator (from an Operating Power Utility) with the requisite demonstrated experience in the operation and maintenance o f H V D C system similar to that o f SNEL will be contracted by SNEL to take full responsibility for the operation and maintenance o f the DRC transmission assets. The contract will be for a period o f at least five years with possibilities o f extension as may be considered necessary. The Contractor’s responsibility will include training o f SNEL transmission operation and maintenance staff to be adequately prepared to take over the O&M services at the end o f the contract. The training will be predominantly on the job, an exceptionally in the home office o f the Contractor for specialized training o f Control Center staff in areas o f emergency simulation and contingency planning and response. The Contractor i s expected to be appointed by September 30, 2012. The O & M contractor will be accountable to SNEL Management,

5. The operator will be remunerated on a fee plus bonus basis. A performance incentive wil l be included in the contract through a mechanism o f bonus/penalty for achieving, exceeding or falling short o f technical performance targets (including for example level o f losses, availability, reliability, and cost effectiveness o f operations).

7. The Project will finance the services o f a consulting engineer to design the O&M contract, assist with the delineation o f the boundaries and assets o f transmission, and the procurement process leading to the selection o f the Contractor, and establishment o f the f i rs t years O&M requirements.

8. A Supervisory Engineer will also be appointed by SNEL to report annually on the technical performance o f the O&M contractor, and to audit the overall performance o f the Contractor and o f SNEL against the set targets.

Main Duties

9. The O&M contractor will have full authority and independence from SNEL with respect to the execution o f the O & M activities, engaging works and maintenance activities, contracting entrepreneurs and suppliers for works, services and goods within the budget approved by SNEL, and as agreed between SNEL, the O&M Contractor and the Supervising Engineer, and following procurement guidelines to be agreed by SNEL and under the surveillance o f the Engineer. The O&M contractor will have i t s own maintenance and operation teams to carry out the O&M activities.

10. The O&M contractor will not be responsible for the dispatch o f electricity, but will design and implement on the job training o f SNEL operating staff in the modern aspects o f load dispatching and management. The Contractor would have a full time staff at the main Control Center in Kinshasa for an agreed duration for the training o f the SNEL staff.

11. The O&M Contractor will also seek to re-establish a culture for maintenance o f the transmission system and, together with SNEL, will develop and publish the proper O&M procedures. H e will also prepare a detailed training program to re-establish this culture at SNEL. This annual program will be discussed and agreed with SNEL annually before the O&M budget i s approved.

73

12. A Supervisory Engineer accountable to SNEL will also be appointed. H is duties will be to provide technical advice on the annual maintenance programs, the training program, and the budget o f the O&M contractor, to report on the technical performance o f the O&M contractor, through an O&M audit and to give advice on the performance o f the O&M contractor and o f SNEL.

C. Funding o f the O&M Expenses and of the O&M Contract

13. management o f SNEL’s f low o f income acceptable to the donors.

The O&M expenses and the O&M contract will be funded through the secured

14. Before the beginning o f each year, SNEL will submit i t s annual O&M budget for review and comments to an independent expert with qualifications acceptable to the Bank and to the institutions financing the Project. Based on this review and before the beginning o f the fiscal year, the annual O&M budget and financial resources requirements will be defined. To ensure that adequate resources are available once the rehabilitation i s completed by end 2012, SNEL will, starting in 2009, progressively build provisions for operation and maintenance.

15. In addition, the project will finance critical and essential materials and equipment, including two long-distance and heavy duty helicopters for rapid response and normal maintenance, and inspections o f the transmission system. In view o f the very long-distance nature o f the transmission system, additional helicopters may be required to enhance maintenance and response to major outages.

16. The technical audit and reporting on the performance o f the Contractor will be carried out by the supervisory engineer for SNEL. In addition, the Project accounts will be audited as part o f the annual audit o f SNEL’s financial statements by the external financial auditor.

74

ANNEX 13: RESULTS FRAMEWORK AND MONITORING ARRANGEMENTS

Democratic Republic of Congo: Southern African Power M a r k e t Project (SAPMP) - APLl Additional Financing

I. Results Framework

1. The monitoring and impact evaluation for the overall project (APL1) will be the responsibility of SNEL, and the Ministry o f Energy. For results evaluation, a mid-term evaluation and final evaluation will be carried out by external consultants, terms of reference for which will be provided by UGP. SNEL will submit regular reports to , IDA, and EIB.

Hierarchy o f Objectives

Sector-related DRC C A S Goal : Increase the availability of electric power

Sector-Related Regional Integration Assistance Strategy (RIAS) Goal : Improve Access to and Reliability of Clean Energy (AAP v)

Program Purpose: To promote regional cooperation to expand and maintain an efficient regional power market

Outcome Indicators

Percentage increase in revenues from power sector.

1. Increased cross border power trade among countries

Quantity (MW) and value of electricity traded between countries Power supply reliability within countries

2. Enhanced reliability of the interconnected grid. 0 Percent o f power loss along

the principal transmission interconnection links Number of power outages within the principal transmission interconnection

3. Improved power connectivity among countries

Number of interconnections within regional systems

4. Cost-effective systems in place 0 Unit cost of traded power

End of Program Indicators: (as per above R IAS)

Use o f Outcome Information

Indicates effect on revenues o f increased power supply to domestic users and increased exports.

To measure in quantitative and qualitative terms the performance o f the Southern African Power Market regional power market.

To measure in quantitative and qualitative terms the performance o f the Southern Africa regional

power market.

75

PDO

To facilitate further development o f an efficient regional power market in the Southern Afr ican Development Community.

Intermediate Results

C. l Upgrade the SAPP Coordination Centre to permit improved energy management and communication between pool members.

Outcome Indicators

1.

2.

3.

Quantity o f firm and reliable electricity exports from DRC to the SAPP; Quantity o f firm and reliable power supplied to the mining sector in Katanga. Commercial and technical information about local and regional electricity supply and market is available to pool members and the public on a regular basis.

IR Indicators

1.1 Tie line flows based on predictive load flows available to pool participants on a regular basis.

Use o f Outcome Information

To evaluate progress towards restoring the transmission system to full capacity in order to provide power to domestic and external consumers. This will contribute to the medium to long-term strategic objectives o f the for the power sector to provide quality and reliable power supply to support economic growth, and regional integration

Use o f Results Monitor ing

Measures effectiveness o f fiber optic telecommunications system and o f the SAPP Coordination Center to support an efficient regional power market.

76

Intermediate Results

C.2 Upgrade transmission system between Inga and the Zambian border to provide reliable industrial quality electricity for domestic use and export

C. 3 Preparatory Studies for Interconnection between Zambia and Tanzania

C.4 Implementation o f environmental and social mitigation measures for communities along the transmission l ine from Fungurume to Kasumbalesa region.

I R Indicators I Use o f Results Monitoring

2.1 Power transfer capability o f HVDC and HVAC transmission system from Inga to the border with Zambia restored to i ts original installed capacity o f 576 M W (2x 288MW);

2.2 95% availability at full load;

2.3 Loss level at 6.5% at full load;

2.4 Stable frequency (50Hz) o f current maintained;

2.5 Stable HVDC voltage (+-500 kV) maintained;

3.1 Feasibility Studies

3.2 Environmental and completed

Social Impact studies completed.

4.1 Number o f community projects completed.

4.2 Number o f households successfully resettled under the RAP.

4.3 Number o f households fully compensated under the CP.

Measures the reliability, quality and quantity o f electricity provided through the transmission system for domestic use and export.

Provides basis for determining overall feasibility o f interconnection between Zambia and Tanzania.

Measures extent to which project i s able to mitigate the environmental and social effects o f the project.

4.4 Number o f communities participating in the HIV/Aids campaign

77

3 E: 2 0

V

3 n

u

3 E: 0

Q

2 0

0 P) * 3

i? s m

B

s

* 4 8

i? N

B Y

5 4 i 3

a 9

Y

3 B 9

d

.L 0 Z

0 00

I S

N 00

ANNEX 15: ECONOMIC RE-EVALUATION Table 15.1

Electricity Demand and Supply Balance (MW) Transmission Line with Original Installed Capacity and Base-Case Mine Expansion

A -Western Power System Load Demand (MW)

TRO+BDD+KKT+MBKA (Kinshas Kanansa KIKWIT SAF-ENERGIE BHP-BILLITON (Alum Smelter)

-E_xpo=ga_ - Sub-Total Kasai

T~tr l Western Demand

Generating Capacity (MW) A - Existing Power Plants

lnga I & 2

Sanea Sub-Total

B - New Installed Capacity lnga 3 (4320 MW) Zonpo 2 1160 MW) Katende Hydro (60MW) Kakobola (9 MW) Sub-Total

Zongo

--

Total Western Power System Capacity

Firin Western System Cepncdj

B - Southern Power System Load Demand (MW)

T R S (Existing Mines)

New Mines

Generating Capacity (MW) A - Exixting Power Plants

Nseke Nzilo I Mwadingusha Kon

Subtotal Firm Available Cnpacity 800,

B -Transfer From the Western System Available Capacity From the West

Capacity of the DC Link Net Transfer From West to South

C - New Projects in the South Nzilo 2 Busanga

th

Firm Southern Capacity

Exports Demand

NET CAPACITY BALANCE

2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025

400 400 400 400 400 450 470 490 520 550 560 570 600 600 600 600 600 600 I O I O I O I O 10 28 46 46 46 46 46 46 46 46 46 6 6 6 6 6 6 6 6 6 6 6 6 6 6 6

45 59 66 73 80 80 80 80 80 80 80 80 80 80 80 1,200 1,600 1,600 1,600 1,600 1,600 1,600

60 60 60 20 20 20 20 20 20 20 A--zo- 20 20 20 20 20 20 460 460 460 481 4% 552 579 606 654 702 712 1,922 U S 2 2352 W 5 2 2,352 2252 2,352

50 50 50 60 70 75 80 85 90 95 100 100 100 100

460 460 460 48s 545 bQ2 629 666 724 777 792 2,001 2,442 2,441 2.452 2,452 2,452 2,452

670 800 960 1,015 1,045 1,045 1,205 1,395 1,235 1,235 1,395 1,395 1,610 1,610 1,610 1,610 1.610 1610 31 31 49 75 75 75 75 75 75 75 75 75 75 75 75 75 75 75

707 837 1,015 1,102 1,132 1,132 1,292 1,482 1,322 1,322 1,482 1,482 1,697 1,697 1,697 1,697 1,697 1,697 6 6 6 I 2 12 I 2 12 12 12 12 12 12 12 12 12 12 12 1 2 -

270 1,890 3,780 4,320 4,320 4,320 4,320 4,320 120 120 120 120 120 120 120 120 120 120

10 20 40 60 60 60 60 60 60 60 60 60 60 3 6 9 9 9 9 9 9 9 9 9 9

* - 10 23 46 I89 189 459 LO19 3,969 4,509 4,509 4,509 4,509 4,509 707 837 1,015 1,102 1,132 1,142 1,315 1,528 1,511 1,511 1,941 3,561 5,666 6,206 6,206 6,206 6,206 6,206

547 611 85s 942 972 982 1,155 1,368 1.351 1,241 1,671 3,291 5,396 5,936 5,936 5,936 5,936 5,936

87 217 395 461 427 380 526 702 627 464 879 1,284 2954 3489 3.484 3.484 3.484 3.484

240 255 268 275 281 289 296 303 311 318 326 343 352 363 373 384 392 404

69 39 143 206 255 212 342 703 695 622 1012 1073 1064 1053 1043 I032 1024 1012

1,41 16 1,416 1,416

180 180 180 180 240 240 240 240 240 240 240 240 240 240 240 240 240 240 75 75 75 75 100 100 100 100 100 100 100 100 100 100 100 100 100 100 33 33 33 44 55 66 66 66 66 66 66 66 66 66 66 66 66 66 26 26 26 26 39 39 39 39 39 39 39 39 39 39 39 39 39 39

314 314 314 325 434 445 445 445 445 445 445 445 445 445 445 445 445 445 251 251 251 260 347 356 356 356 356 356 356 356 356 356 356 356 356 356

81 203 369 431 399 355 492 656 586 434 822 1,201 2,762 3,262 3,258 3,258 3,258 3,258 150 500 500 500 500 500 500 500 500 500 1,000 1,000 1,000 1,000 1,000 1,000 1,000 1,000 81 203 369 431 399 355 492 500 500 434 822 1,000 1,000 1,000 1,000 1,000 1,000 1,000

120 120 120 120 120 120 120 120 120 120 120 240 240 240 240 240 240 240 240 240 240 240

84

24 160 210 900 300 300 $00 300 300

92 160 210 210 210 210 210 210 210 210 200 300 300 300 300 300 300 300

(68) 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0

83

A -Western Power System Load Demand (Mw)

TROtBDDtKKT+MBKA (ffinshasa) Kananga KlKWlT SAF-ENERGIE BHP-BILLITON (Alum Smelter) Export Braza SubTotaI Kmiu

Tote1 Weptern h a n d

Generating Capacity (MW) A. Existing Power Plants

lnga 1 & 2 Zongo Sanga sub-Total

B - New Installed Capacity lnga 3 (4320 MW) Zongo 2 (160 MW) Katende Hydro (60MW) Kakobola (9 MW)

Total Western Power System Capacity

Capacity Balance to the Southern System

B - Southern Power System Load Demand (MW)

TRS (Exishng Mines) Neb Mines Ssb-Total

Generating Capacity (MW) A - Exixting Power Plants

Nseke Nzilo 1 Mwadingusha Kon

Subtotal Firm Available Capacity 809

B -Transfer From the Western System Awilable Capacit). From the West Capacity ofthe DC Line' Net Transfer From West to South

C - New Projects in the South Nzilo 2 Busanga

Firm Southern Capacity

Exports Demand

AETL'APACIN BALANCE

Table 15.2 Electricity demand and Supply Balance (MW)

Transmission Capacity at 1000 MW, High Case Mining Sector Demand

2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025

400 400 400 400 400 450 470 490 520 550 560 570 600 600 600 600 600 600 I O I O I O I O I O 28 46 46 46 46 46 46 46 46 46 6 6 6 6 6 6 6 6 6 6 6 6 6 6 6

45 59 66 73 80 80 80 80 80 80 80 80 80 80 80 1,200 1,600 1,600 1,600 1,600 1,600 I 6 0 0

60 60 60 20 20 20 20 20 20 20 20 20 20 20 20 20 20 20 460 4M) 460 48s 495 552 579 606 654 102 712 l$Zt 2,352 2352 2,352 2,352 2,352 2,352

50 50 50 60 70 75 80 85 90 95 100 100 100 100

460 460 460 481 $45 602 629 6M, 724 777 192 2,007 2,442 2,447 2,452 2,452 1,432 2,432

670 800 960 1,015 1,045 1,045 1,205 1,395 1,235 1,235 1395 I395 1,610 1,610 1,610 1,610 1,610 1,610 31 31 49 75 75 75 75 75 75 75 75 75 75 75 75 75 75 75 6 6 6 12 12 12 I 2 12 12 12 12 12 12 12 12 I 2 I 2 12

707 837 1,015 1,102 1,132 1,132 1,291 1,482 1J22 1,322 1,482 1,482 1,4Y? 1697 S,697 1,697 1,657 1,697

270 1,890 3,780 4,320 4,320 4,320 4,320 4,320 120 120 120 120 120 I20 120 120 120 120

I O 20 40 60 60 60 60 60 60 60 60 60 60 3 6 9 9 9 9 9 9 9 9 9 9

240 255 268 275 281 289 296 303 311 318 326 343 352 363 373 384 392 404

69 39 143 206 255 212 342 703 695 622 690 573 564 553 543 532 524 512

309 294 411 481 536 501 638 1,006 SQU6 940 1,026 916 916 916 916 916 916 916

180 180 180 180 240 240 240 240 240 240 240 240 240 240 240 240 240 240 75 75 75 75 100 IO0 100 100 IO0 100 100 100 IO0 100 100 100 100 100 33 33 33 44 55 66 66 66 66 66 66 66 66 66 66 66 66 66 26 26 26 26 39 39 39 39 39 39 39 39 39 39 39 39 39 39

314 314 314 325 434 445 445 445 445 445 445 445 445 445 445 445 445 445 251 I 251 I 251 I 260 I 347 I 356 I 356 I 356 I 356 I 356 I 356 I 356 I 356 I 356 I 356 I 356 I 356 I 356

81 203 369 431 399 355 492 656 586 434 822 1,201 2,762 3,262 3,258 3,258 3,258 3,258

I50 500 500 500 500 500 500 500 500 500 500 500 500 500 500 500 500 500 81 203 369 431 399 355 492 500 500 434 500 500 500 500 500 500 500 500

I20 120 120 120 120 120 120 120 120 120 120 240 240 240 240 240 240 240 240 240 240 240

92 160 210 210 210 210 210 210 210 210 200 300 300 300 300 300 300 300

84

Economic Analysis

Introduction:

1. The analysis o f economic justification i s carried out in three stages to ensure:

0

0

that there i s a market to be served by the Project that the Project provides the least-cost means o f providing the transmission capacity for power transfer capability from the Inga hydropower complex to serve the electricity markets in the industrial heartland o f DRC - the Katanga Province, and in the Southern African Power Pool (SAPP); and

0 the profitability o f the investment in the Project as measured by the internal economic rate o f return.

The Power Markets

2. For the foreseeable future, there are two main markets to be served by the Project with bulk electricity supply - (i) the industrial heartland comprising mining companies and associated supporting industrial complexes, the commercial sector and households in the Katanga Province; and (ii) the electricity market in the SAPP.

3. The performance o f the mining sector i s vital to the economy o f the DRC. The mining sector i s heavily dependent on electricity supply and i ts reliability for i t s production. The projected growth in electricity demand reflects the expected rapid growth in economic activity in the Katanga Province, and, particularly, in the mining sector. As a result, electricity demand in the Province, o f which the mining sector accounts for about 95% i s projected to grow from 309 M W in 2008 to 1,090 M W in 2015, and to reach about 1359 M W in year 2020, an average annual growth o f about 13% over the period. Similarly, energy requirements are projected to grow from about 2420 GWh in 2008 to about 10,700 GWh in 2020. Most o f the growth in demand i s expected between 2008 and year 20 15 as a result of expected rapid increased production, and investments already committed to expand existing mining operations, as well as to the development o f new green-field mines. However, it i s likely that the recent down-turn in the international copper and other metal markets, if the trend continues, wi l l slow down the growth o f the mining sector in the Katanga Province, and i t s expected contribution to the GDP. However, such down-turn, which may lead to lower electricity demand in the mining sector, would make more electricity available for exports into the SAPP. The comparative advantage o f DRC in the SAPP market i s i t s relatively low cost electricity.

The Market in the Katanga Province:

4. Following their full rehabilitation to fully restore original installed capacities, the existing generating plants in Katanga Province, complemented by new generating capacity to be developed in the Province in 20 15/20 16 would be able to meet only about 60% (700 MW) o f the projected demand in the Katanga Province at that time. Therefore, there wi l l be need for continuous and steady power transfers from the Inga hydropower complex to complement the supply from the power plants in the Katanga Province to fully meet the demand in the Province. This underscores the importance o f having available, as soon as possible, a fully rehabilitated and reliable transmission system to provide the power transfer capability, and the original decision o f the GoDRC in the early 1970’s to construct the high voltage transmission system

85

from Inga to Kolwezi and onwards to the border o f Zambia to external power markets in the Southern Africa region.

63,530 403,294

5. With the expected steady growth in electricity demand due to increased industrial and commercial activity and population growth, new sources o f generation will need to be developed. Inga 3 (4,200MW) i s the obvious least-cost candidate plant in l ine to be developed to cope with the increased demand in DRC. Inga 3 development i s also part o f the medium to long- te rm least-cost power generation expansion program for the Southern African Power Pool and expected to be in service by year 2020. I t wi l l not only serve to meet the demand in the DRC, but will also be a significant source o f power supply to the Southern African Power Pool (SAPP), and a significant source o f foreign exchange earnings for DRC. The transmission developments necessary for the power transfer capability into the Katanga Province and into the SAPP are discussed,below,

77,576 93,565 448,254 586,904

6. The Southern Africa Regional Market: The SAPP electricity market has also seen phenomenal growth over the past years, with South Africa, being the dominant player, accounting for about 80% o f the volume o f consumption in the SAPP. The trend o f high growth in electricity demand i s expected to continue as economies o f the region continue to experience rapid growth. Adequate and reliable electricity supply i s critical to attaining the projected economic growth in the region. Based on the SAPP Pool Plan study recently completed by Consultants in collaboration with the SAPP Co-ordination Center, the member uti l i t ies o f SAPP, as well as the Bank, peak electricity demand in the SAPP, including DRC i s projected to grow from 46,949 M W in 2008 to 77,576 M W in 2025. In South Africa, the biggest market in the SAPP, peak demand i s projected to grow from 38, 201 M W in 2008 to 62,725 M W in 2020, an average annual growth rate o f about 4.2% per year over the period. Table 15.3 provides a summary o f the projected peak demand and energy for the SAPP.

51.204 327,790

Table 15.3 - Summary SAPP Electricity Demand Forecast

62,725 75,919 398,084 480,749

Yearmemand Total SAPP

Peak Demand (MW) Energy (GWh)

ESKOM-SA

Peak Demand (MW) Energy (GWh)

2008

46,949 306,093

38,201 252,109

2010

5 1,576 332,776

4 1,524 271,103

7. The study's main ob-iective was to derive

2015' I 2020 I 2025

least-cost generation and transmission expansion programs for the SAPP that could serve as a basis o f decision by the SADC countries on regional priority generation and transmission projects for the future development o f the integrated SAPP, and to demonstrate the advantages for the region o f electricity trade. Inga 3 and the other proposed future hydropower plant developments in the DRC, as well as the rehabilitation o f Inga 1 &2 are part o f the medium to long-term least-cost generation expansion program for the SAPP. The SAPP offers a large market for the relatively cheaper hydro-based electricity o f the DRC. On the basis o f Pool Plan study, DRC could contribute, as exports, about 26,000 GWh o f electricity each year from year 2020 following the coming into service o f Inga 3

86

.

to meeting the demand in the SAPP on a firm continuous basis. Currently, D R C exports 110 MW to South Africa and 100 MW to Zimbabwe, although, rather unreliable due to inadequate generation and the poor state o f the transmission infrastructure. Electricity imports from DRC could lead to overall reduction in the cost o f electricity in the SAPP, enhance industrial competitiveness, and promote economic growth in the Southern Africa region. Therefore, following the rehabilitation o f the existing power generation and transmission infrastructure to improve quality and reliability o f supply, which i s necessary to re-establish confidence o f the Southern Africa power market, imports o f electricity from DRC by Southern Afr ica will be as large as DRC is able to supply. The Project i s needed to serve both the power market in the Katanga Province, as wel l as and the market in the Southern Afr ica Region.

Plant Type

Least-cost Justification

Unit Cost Installed Capacity Total Capital $ k W MWI Distance in Cost

8. The question arises as to whether the Project i s the most cost-effective or least-cost means o f serving the two markets discussed above. To answer this, the cost o f the Project was compared to the cost o f two practically feasible alternatives as discussed below.

Hydro Plants

9. Construction o f a new transmission system o f the same structure, configuration, and power transfer capability o f 576 MW as the existing one, comprising 1,700 kilometers o f high voltage direct current (HVDC) system, and about 300 kilometers o f high voltage alternating current (HVAC) system, including associated transformer stations. The estimated capital and development cost o f this alternative based on the current international market prices i s about US$1.2 bi l l ion in real terms, o f which the H V D C system i s estimated at about US$1 billion, and H V A C system at about US$200 million. The estimates are comparable to those used in the SAPP Pool Plan study in determining the cost o f future high voltage transmission backbone development for the integrated SAPP system. The estimate excludes the cost o f the environmental and social mitigation measures that would normally be part o f such a transmission development. The estimated cost o f the Project, including the cost o f the associated environmental and social mitigation measures and owner’s cost, and excluding price contingencies is about US$ 394 million, much lower than the cost o f installing a new transmission system o f same size and configuration.

Alternative 1.-

km US$ million 1,000 600 600

10. Alternative 2: Construction o f additional generating capacities o f about 600 MW in place o f the power transfer f rom the West into the Katanga Province to complement supply to the mines and for exports into the SAPP. The total cost, including required transmission capacity i s estimated at about US$700 million. The capital cost associated with this alternative i s summarized below:

Busanga (240 MW); Nzi lo 2 (120 MW ) and others New 220 kV transmission lines and substations Total Development Cost

250 km 100

700 $400,OOO/km

The cost o f this alternative o f $700 mi l l ion i s in excess o f the cost o f the Project.

1 1. 'The analysis above, therefore, confirms the Project - the rehabilitation and reinforcement o f the existing transmission system to restore i t s originally installed power transfer capability o f 576 MW, as the least-cost means o f serving the two markets described above. The alternative o f not undertaking the Project is not a feasible option to serve the two markets. In i t s current state, the transmission system i s barely capable o f carrying 150 MW o f load, compared to i t s installed capacity and power transfer capability o f 576MW (2x 288MW), because o f the poor operating state o f several key components o f the system. Further deterioration will continue at a rapid rate which will lead to the total failure o f the entire transmission system in a few years. Under such circumstances, power transfers from Inga to the mines and other industries in the Katanga Province will be curtailed, which will have significant negative impacts on economic growth. In addition, D R C will not be in a position to honor its obligations under export contracts, and interest in the development o f the future large hydro schemes in the D R C will wane.

Future SAPP Transmission Backbone and the Project

12. The SAPP Pool Plan Studyanalyzed and derived the least-cost future high voltage transmission backbone development for the SAPP that would transfer power from the major power generation sources in the long-term least-cost power generation expansion program o f SAPP to the major demand centers within the SAPP. The least-cost transmission backbone expansion program will comprise new 4x500 kV direct current (HVDC) o f 3,000 M W o f power transfer capability from Inga to Kolwezi, 5x700kV high voltage A C l ines from Kolwezi through Zambia, using the existing transmission corridor from Inga to the border with Zambia, to South Africa, and linking similar size transmission lines f rom the large hydro power schemes in Mozambique. The existing high voltage transmission system (the Project) following i t s rehabilitation and reinforcement will need to be further reinforced with the installation o f additional 500 MVA power transformers at Inga and Kolwezi, and to construct a double circuit 220kV from Kolwezi to Solwezi in Zambia to shore up its power transfer capability to 1,000 MW as an integral part o f the future SAPP backbone transmission system. These developments should be in place prior to the completion o f construction and commissioning o f Inga 3 in 20 18- 2020, and are critical for the realization o f the significant export potential from Inga 3. Thus, in the regional context, the Project is part o f the future least-cost transmission backbone development o f SAPP, and will reduce transmission related cost o f Inga 3 development by about $440 million.

Economic Rate of Return

13. The economic rate o f return on the investment in the Project is re-evaluated at the higher project cost, and taking into account the additional five years required to complete the Project at end- December 2012. All costs and benefits were expressed in constant prices o f September 2008. The analysis followed the standard approach o f comparing economic costs to economic benefits. The assumptions underlying the analysis for the Base Case are stated below.

14. Costs; These comprise:

Capital cost of the Project - estimated at US$394 million. It i s made up o f the cost o f rehabilitation and reinforcement o f the H V D C and H V A C systems from Inga to the

88

border with Zambia, including the associated telecommunication system, the institutional aspect for implementation, the engineering and procurement services, as well the environmental and social mitigation measures to be implemented as part of the Project. The costs are based on the values o f the bids received for most o f the main components, and estimates. The estimates are based on detailed engineering studies, which established the needs, the costs o f which were based on recent international market prices o f electricaI equipment and materials, and adjusted for industry accepted criteria for physical contingencies for rehabilitation o f projects o f this nature, but excluding price contingencies. Cost o f engineering service was based on the results o f the international competitive bidding. For the purpose o f the analysis, costs o f components for which contracts have been awarded are not considered as sunk or committed, since physical implementation o f those components has not begun, by themselves could not constitute the project, and could also be terminated if the additional financing to complete implementation o f the whole project i s not secured.

Annual Fixed Operation and Maintenance Cost: is based on standard industry practice. for large transmission systems o f 1% o f the cost o f installing a new similar transmission system. For the project, the estimate is US$12 mi l l ion as 1% o f the cost o f installing a new transmission system o f same structure and power transfer capability at the cost o f US$1.2 billion.

Enerm cost into the transmission svstem: Cost o f energy into the transmission system i s based on the cost o f Inga 3 as a proxy for the marginal cost o f generation. Inga 3 i s the next in-line candidate development in the least-cost generation expansion program o f DRC, which i s entirely hydro-based. The next developments will be the Grand Inga schemes, which are further in the future. Inga 3 is expected to be the main source o f electricity supply to meet the incremental demand from 201 8 into the foreseeable future. The output o f the rehabilitated Inga 1 and 2 would be committed to mostly meeting the existing demand that had been severely suppressed due to inadequate generation and the dilapidated state o f Inga 1 and 2. Inga 3 i s also included in the least-cost generation expansion program o f the S'APP, as discussed above. The cost o f Inga 3 i s based on recently completed pre-feasibility study by international consultants for DRC , as well as the estimate used in the Pool Plan study. The installed capacity is expected to be 4,320MW at an estimated installed cost o f US$4.32 billion, excluding interest during construction. The marginal cost o f generation from Inga 3 is estimated at US$0.02/kWh based on:

a. net capacity = 3,580 MW ( allowing for reserve margin); b. availability o f about 82%, (45 days scheduled maintenance and 18 days per year

o f forced outage - 5% rate); c. auxiliary consumption o f 0.5% o f output (1 8 MW); d. over-night capital costkW (net) = $1200 e. cost/kW/year = $122.8

15. Benefits: The benefits comprise the incremental energy transfers from the Inga 1&2 hydropower plants starting from January 2013, following the completion o f the Project in 2012, as well as energy transfers from Inga 3 hydropower power station following i t s commission in years 2018 -2020 to the Katanga Province, and for exports into the SAPP. I t is assumed that

89

DRC will meet its commitments under the existing and recently concluded export sales contracts Total export into SAPP is set at 2 10 M W at 100% load factor from 201 3 onwards following the completion o f the Project. The trade-off in this regard i s that demand in Kinshasa would remain suppressed, and would grow moderately at about 2.6% per year from 600 M W in 2008 to about 700 MW in 2015. However, the suppressed demand i s eliminated when Inga 3 comes into service beginning in year 2018. This i s also consistent with the time that will be required to rehabilitate and expand the distribution system in Kinshasa in order to remove the supply constraint and enable normal demand growth in Kinshasa. In addition, a slower growth in demand in the Katanga Province, including, especially the mining sector, i s projected taking account o f actual and expected situation in the mining sector, and expectations o f the immediate future evolution o f the international metal markets. The net energy transfers from Inga into the Katanga Province and into SAPP are summarized in Table 15.5 below. The transfers are limited by the capacity o f the transmission system at 500 MW or 3942 GWh at 90% load factor. This limit is reached in 201 8 for the transfers into the Katanga Province. As a result, the mining load i s capped at about 1095 MW from 201 8 onwards. The energy transfers are net o f transmission losses o f about 6.5%. The loss level reflects the long-distance nature o f the transmission system, and the typical high energy losses in the HVDC inverter/converter systems.

2020 202 1 2022 2023

Table 15.5 - Net Energy Transfers to Katanga Province and into SAPP 2013- 2050

3682 1840 5522 3682 1840 5522 3682 1840 5522 3 682 1840 5522

2024 3682 2025 3682

1840 5522 1840 5522

2030 203 5

3682 1840 5522 3682 1840 5522

2040 2050

16. The timing and magnitude o f the energy flows are based on the assumption that the rehabilitation o f Inga 1 and 2 hydropower stations to restore the original installed capacity o f 16 10 MW will be completed in year 2020. In addition, the rehabilitation o f the smaller power stations, Zongo l(75MW) and Sanga (12 MW), as well as the existing 445 MW o f hydropower plants in the Katanga Province will have been completed in 2013-2016. Furthermore, i t i s assumed that three new green -field power plants o f total installed capacity o f 34 MW would

90

3682 1840 5522 3682 1840 5522

have been commissioned, followed by the commissioning o f Zongo 2 (1 60 MW), Busanga (240 MW), Nzilo 2 ( 120 MW) in 2016/17, and Inga3 in 2017-2020

17. The above energy transfers show the limitation o f the fully rehabilitated transmission system, and, as a result, the significant amount o f electricity that becomes available, after the demand in Kinshasa and other areas in the West are met following the commissioning o f Inga 3 cannot be transferred into the Katanga Province and for exports. To be able to reap the full economic benefits o f Inga 3, the power transfer capability o f the existing transmission system would need to be augmented to 1,000 M W at an additional cost o f about US$200 million by end- 2017 to complement the transmission development associated with Inga 3. The impact i s examined as one o f the scenarios o f sensitivity analysis.

18. The Willingness -to -Pay (WTP) o f SAPP i s used as the basis o f determining the value o f a unit o f electricity consumed in the mining sector and also exported from DRC into SAPP. The WTP i s based on the cost o f the alternative source o f supply to SAPP in-lieu o f imports from DRC. This i s estimated as the average incremental cost (AIC) o f supply derived from the long-term least-cost generation expansion program o f SAPP. The expansion program comprises a mix o f hydro, coal, nuclear plants for base load and mid-range duty, and pump-storage, oi l and gas plants for peaking duty.

Valuation of benefits:

19. The AIC i s estimated at USc. 8.69/kWh based on the weighted average o f incremental cost o f base-load plants at about USc 7lkWh and o f peaking plants at USc 18/kWh. The price o f a unit o f electricity (kWh), as the value to DRC o f export into SAPP i s estimated as the net-back o f the AIC o f SAPP, adjusted for incremental transmission cost o f USc 0.65/kWh, and cumulative transmission losses o f about 12% from the off-take point at DRC/Zambia border to South Africa. This i s estimated to be USc7/kWh. This price level i s based on the principle that energy supply from DRC i s available all the time and could be used to serve both base-load and peaking loads on a sustained reliable basis. The WTP i s achievable by the time the project i s completed, as time i s also required for DRC to re-establish confidence in the market that i t i s capable o f providing electricity into the markets on a reliable basis. For several years now, supplies to the mines, domestic consumers, and customers in the SAPP have been subject to high levels o f unreliability. Impact on the project economics i s assessed under a sensitivity test that considers the energy supply from DRC as predominantly for serving based load. In this case, energy i s valued at USc 5.65/kWh, based on an AIC o f USc 7/kWh for base- load supply in the SAPP, adjusted for transmission cost and losses.

20. The energy transferred by the transmission system to the mines and other industries in the Katanga Province as well as the exports into SAPP are valued at USc 7/kWh, since the value to DRC i s the same regardless o f the market, and enables DRC to capture significant consumer surplus in relation to i t s own long-run marginal cost o f USc 2.75/kWh for bulk power at the transmission level In addition, there i s willingness to pay on the part o f the mines as compared to the cost o f the alternative oil-fired generation, which some mines have resorted to using due to the supply shortage.

2 1. Power Sales Contracts: SNEL i s negotiating new power sales contracts with the mines and other uti l i t ies in the region.

91

Sensitivity Analyses

22. rate o f return (ERR) on the investment in the Project. The cases are mentioned below

Ten alternative sensitivity cases were considered to test the robustness o f the economic

20% real increase in the capital cost o f the Project, which could occur due to unforeseen physical contingencies associated with rehabilitation projects o f this nature; value o f energy to DRC i s set at USc 5.65kWh reflecting net-back o f AIC o f base-load supply in the SAPP; 2 years delay in completing Inga land 2; combined effect o f 20% capital cost increase, and 2 years delay in completing Inga 1 and 2 at energy values o f USc7kWh and USc 5.65kWh respectively; Increase in power transfer capability to 1000 MW with additional investment o f US$200 million; 5 years delay in completing new additional generation o f about 500 M W in the Katanga Province to complement existing supply and to enable exports into SAPP; the combined impact o f 5 years delay in completing Inga 1 and 2, 5 years delay in construction o f new generating capacity additions; 20% increase in capital cost, and energy valued at USc 5,65kWh; electricity transfers from the West to the Katanga Province, and export sales valued at US$O.O35kWh, average o f existing power tariffs to bulk consumers in DRC and the negotiated export prices, as a proxy for the willingness-to-pay over the long-term; and a 20% decline in power transfers from the West into the Katanga Province reflecting potential decline in the demand o f the mining sector.

Results

23. The Base Case ERR on the investment in the Project i s estimated at 31%. The sensitivity analysis confirms the robustness o f the ERR on the investment in the Project. In all the sensitivity cases considered, the ERR remains above 1 O%, the estimated long-term opportunity cost o f capital to DRC. The ERR i s most sensitive to price and delays in rehabilitation o f Inga 1 &2, than to real increases in the capital cost. Even, in the event o f a combined capital cost increase, two years delay in the rehabilitation o f Inga 1&2, as well in the completion o f Inga 3, the ERR drops to only 21%. In the event o f even 20% decline in power transfers into the Katanga Province due to the decline in the mining demand, the ERR s t i l l remains high at 26%. In the highly unlikely, but possible event that the willingness to pay for bulk supply remains at the current average bulk supply price o f US$0.035/kWhY the project i s s t i l l viable with ERR equal to the long-term opportunity cost o f capital o f 10%. The analysis further shows that the coming into service o f Inga 3, provides significant opportunity for additional exports into SAPP subject to additional investments being made to increase the power transfer capability o f the existing transmission l ine after rehabilitation to 1,000 MW. This latter point i s only illustrative, since the expanded power transfer capability i s beyond the scope o f the Project, but shows the impacts on DRC o f additional transmission investments to enable additional power exports into the SAPP. Results o f the sensitivity analysis are shown in Table 15.6.

92

Table 15.6 - Results o f Sensitivity Analysis

Base Case and Sensitivity Cases Considered

Base Case: (i) power transfers f iom West to Katanga take account of distribution system constraints in Kinshasa in the early years until I g a 3 comes into service; i i export contractual obligations fully met; (iii) cost of energy delivered to the transmission system based on marginal cost of generation f iom Inga 3 at USc2,2/kWh; and iv. electricity sales valued at USc77/kWh as the WTP of the integrated SAPP for DRC power net back to the DRC border with Zambia Alternative 1: capital cost increase of the Project by 20% Alternative 2: enera value at UScS.tWkWh for base-load supply

Alternative 3: 2 years delay in completing Inga 1 &2 Alternative 4: 20%capital cost increase + 2 years delay in completing Inga I and2+energy value at USc 7/kWh Alternative 5: 2 years delay in completing Inga I and 2 +2 0% capital cost increase + energy value at USc 5.65/k Wh Alternative 6: increase power transfer capability to 1 O O O M W Alternative 7: 5 years delay in completing 520 MW of new capacity,

Alternative 8: combined effect of 20% capex increase, 5 years delay in completing Inga 1 and 2, 5 years delay in completing new additional generating capacity; and lower energy value of USc5.65kWh Alternative 9: 20% reduction in energy transfers to the transmission line due to decline in mining sector demand Alternative 10: energy valued at USc$3SkWh, the current average bulk supply to the mining sector, as an estimate o f the long-term willingness-to-pay

Net Present Value (US$ Million) at 10% Discount rate

817

773 5 00 787 743

434

2124 692 3 04

598

0

Economic Rate Return (”/)

31

27 24 29 26

21

37 27 17

26

10

Other Benefits

24. The other benefits o f the Project not considered in the above analysis include:

0 The benefits to DRC o f the use o f the excess telecommunication capacity to be made available for al l the various forms o f communication and information for private and public business, and household applications. It will provide the f i rst broad-band telecommunication back-bone infkastructure for DRC , and expected to reduce the cost o f telecommunication services by about two-thirds. An approximate conservative estimate o f the incremental revenue to accrue to the industry i s estimated at about US$1 bi l l ion in the f i rst 6-7 years o f coming into operation o f the telecommunication system;

0 Provision o f social infrastructure to the communities along the transmission l ine corridor under the Project, comprising water supply and sanitation systems, construction o f schools and clinics, including provision o f school furniture and six months supply o f basic medicines, electrification, and the implementation o f HIV/Aids awareness campaign will bring added improvement in the quality o f l i f e o f the communities, and generate more economic activity in the communities;

93

The catalytic effect o f the Project in attracting private investments into the rehabilitation o f Inga 1852, as well as o f Inga 3 because o f the access it will provide to the power markets in the Katanga Province and in the SAPP. Although, additional investments wi l l be required to increase power transfer capability o f the Project, it wi l l reduce the transmission investments o f Inga 3 by nearly $440 million.

0 The Project will in the future serve as the main backbone for cost-effective electrification o f the interior o f the country to extend access to the majority o f the population in the hinterland o f the country. There are a number o f major towns with large populations with no electricity supply. Electrification o f these will not only improve levels o f economic activity and incomes, but would also enable improvements in the quality o f l i fe.

94

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9

ANNEX 16: FINANCIAL MANAGEMENT, AUDIT AND DISBURSEMENT ARRANGEMENTS

Democratic Republic o f Congo: Southern African Power Market Project (SAPMP)-APL1 Additional Financing

A. Summary Risk Analysis and Mitigations

1. An effective financial management system i s vital for the project because o f the need to deliver services quickly to a wide variety o f stakeholders. The objectives o f the project’s financial management system are to: (i) ensure that funds are used only for their intended purposes in an efficient and economical way while implementing agreed activities; (ii) enable the preparation o f accurate and timely financial reports; (iii) ensure that funds are properly managed and f low smoothly, rapidly, adequately, regularly and predictably to implementing agencies; (iv) enable project management to monitor the efficient implementation o f the project; and to (v) safeguard the project’s assets and resources.

2. To ensure a strong financial management system, the implementing agencies should have an adequate number and m i x o f skilled and experienced staff, the internal control system should ensure the conduct o f an orderly and efficient payment and procurement process, and proper recording and safeguarding o f assets and resources. The accounting system should support the project’s requests for funding and meet its reporting obligations to fund providers including IDA and other donors. The system should also be capable o f providing financial data to measure performance when linked to the outputs o f the project. Lastly, an independent, qualified auditor should be appointed to review the Project’s financial statements and internal controls.

3. The overall FM risk rating i s Substantial based on the update made following the last supervision mission carried out on July 2008. The risks o f lack o f transparency, corruption and misuse o f funds are high in DRC and ensuring fiduciary compliance in D R C remains a major concern. The SAPMP will be implemented through a ring-fenced mechanisms (UGP) set up at the SNEL offices with relatively stringent financial management and audit arrangements. Moreover, the fiduciary aspects o f the project will be contracted to BCECO and the supervision by the Bank will be carried out with a mixed team o f FM, procurement, Disbursement and M&E colleagues to verify the use o f resources (materiality o f expenditures). The fiduciary arrangements agreed upon with the Borrower, include: (i) an appropriate financial management system; (ii) contracting o f the fiduciary aspects o f the project to BCECO, a implementation unit created since 2002 and managing several donors-financed projects; (iii) enforcement o f double signature on all payments and withdrawal applications by the Financial Director and the Managing Director o f BCECO; (iv) internal auditing department to review transactions; (v) prior review and approval o f the SNEL team to any payment made by BCECO; (vi) annual financial audits covering expenditures incurred at central and decentralized levels.

B. Financial management arrangements

4. Financial management o f the Additional Financing will fol low the same approach as the implementation arrangements in place for the ongoing Project. The FM activities will be contracted to BCECO composed o f experienced and skilled FM staff including a strengthened internal audit department. These FM arrangements are considered appropriate by IDA for having

99

been improved through the implementation o f the action plans prepared by the GoDRC fol lowing the auditing firms’ reports and Bank team implementation support missions. So far Interim Un-audited Financial Reports (IFR) are submitted to the Bank regularly in a form and substance that comply with IDA Financial Management requirements, and are current. The overall FM rating i s deemed Satisfactory. The last FM implementation support mission carried out in July 2008 did not reveal significant FM weaknesses except for the lack o f a proper budget, the l o w disbursement rate and the issue o f percentage o f eligibility o f some categories o f expenditure. An action plan to improve the weaknesses o f the FM system o f the project i s in place and being implemented satisfactorily by the project. Most o f the issues identified in the auditor reports are currently being addressed. I t i s agreed that BCECO will provide skilled and experienced staff to handle more efficiently the key FM functions (e.g. financial reporting, treaswer/disbursement, financial control and budgeting and internal audit).

5. Independent external auditors acceptable to IDA are also appointed to carry out the audit o f the Project. So far the financial statements o f the SAPMP have been audited annually since project effectiveness. The external audit reports are submitted to IDA within six months after the end o f each year. The last audit reports o f project financial statements for the period ended December 3 1,2007 were unqualified (clean).

6. Similarly to the existing arrangements under the project, the disbursements under the project will be made through Direct Payments (DP) or Special Commitment methods o f disbursing funds from IDA (see Disbursement Letter and Guidelines for details), as well as through one pooled Designated Account (DA) denominated in U S dollars and managed by BCECO. All payment invoices for activities under the project in excess o f 20% o f the ceiling o f the DA will be made through Direct Payments on the basis o f requests for payment certified and submitted by BCECO to IDA. The DA will finance invoices for expenditures under the Project up to 20% o f the ceiling o f the DA. Upon effectiveness o f the grant and receipt o f a withdrawal application to that effect from the Borrower, an advance will be made to the Recipient up to the ceiling indicated by IDA from time to time in the disbursement letter to pay for eligible project expenditures. The Recipient can submit requests for reimbursement for eligible expenditures incurred under the project. For the sake o f simplification, disbursements from the IDA grant will be supported by Statements o f Expenditures (SOE), also known as “SOE- based” or “Transaction-based” disbursements. Thereafter, the option to disburse against submission o f Interim Financial Report (also known as the Report-based disbursement method) could be considered subject to the quality and timeliness o f the consolidated IFR submitted to IDA by the SAPMP. In this case, cash forecast for the next six months will be included in the quarterly IFRs submitted to the Bank.

7. in the financing agreement.

Funds will be disbursed in accordance with Project categories o f expenditures, as shown

100

ANNEX 17: ESTIMATED REVISED DISBURSEMENTS OF TOTAL I D A FINANCING

Additional Financing (US$ million) Total - Credit and Additional Financing (US$ million)

Democratic Republic o f Congo: Southern African Power Market Project (SAPMP)-APL1 Additional Financing

2003-2008 0.00 55 80 27 18.62 180.62

6.2 58 90 112 55.92 36.00 358.12

1 Fiscal Year (FY) I Cum. I2009 I2010 I2011 I2012 I2013 I Total

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ANNEX 18: PROCUREMENT

Democratic Republic of Congo: Southern African Power Market Project (SAPMP)-APLI


General

1. As per the Project Agreement dated January 21, 2004, Goods and Works were to be procured in accordance with the provisions of the Guidelines for Procurement under IBRD Loans and IDA Credits published in January 1995 and revised in January and August, 1996, September 1997 and January 1999, and consultants' services were to be procured in accordance with the Guidelines: Selection and Employment of Consultants by World Bank Borrowers published by the Bank in January 1997 and revised in September 1997, January 1999 and May 2002. However, due to the delays that occurred in procurement under the project, which did not begin until 2007, the Guidelines: Procurement under IBRD Loans and IDA Credits published by the Bank in May 2004 and revised in October, 2006 have been and will continue to be used. In addition, the Guidelines: Selection and Employment of Consultants by World Bank Borrowers published by the Bank in May 2004 and revised in October 2006 will be applied to the new contracts for consultancy services to be procured under the additional financing".

Institutional Arrangement

2. The institutional arrangement as set out in the above-mentioned Project Agreement has been maintained with BCECO as the procurement agent to: (a) support SNEL in carrying out the following tasks through the project management unit, UGP: (i) financial management and disbursement; (ii) procurement; (iii) monitoring and evaluation; (b) compliance with those obligations pertaining to SNEL referred to in Section 4.01 and 4.02 of the Project Agreement.

Capacity assessment

3. The proposed procurement agent has demonstrated capacity in handling procurement matters of several Bank financed projects. The capacity assessment conducted by the Bank Procurement team based in Kinshasa reviewed the procurement organizational structure and the interaction between the project's staff responsible for procurement and the other members of the team, and found it acceptable. The procurement and financial management services provided by BCECO have been good. Although some delays have occurred in the procurement of the major contracts, such delays are due to circumstances other than the quality of procurement services.

Procurement Plan

4. The Updated Procurement Plan of the project prepared in 2005 has been followed for the procurement of all the main contracts of the various project components. International Competitive Bidding (lCB) procedure has been followed for all the Goods, and supply and installation works, following a detailed pre-qualification process conducted by the Borrower under Bank procurement guidelines. Procurement of the main contracts of the various project components is almost complete. Small civil works and small supply installation contracts are being procured under Local Competitive Bidding (LCB) procedure. There are six of such small contracts under the community development component. Procurement of the consultancy

102

services for training and studies is to be done in accordance with the latest Bank Guidelines for the appointment of consultants. The Procurement Plan was re-confirmed at appraisal with SNEL and BCECO. The detailed procurement plans are provided in the Project Files. Table 1 below shows project cost by procurement arrangement.

Frequency of Procurement Supervision

5. In addition to the prior review to be catried out from the Bank Country Office, the Bank will on a quarterly basis carry out, through supervision missions, post-review/audits, and capacity assessment of the implementing agencies to assess their levels of risk. Table 1 below shows project cost by procurement method.

Expenditure Category

Works: Supply and Installation Goods·

Services

Consultants

Training

Total Project Cost of which IDA financing

Table 1 - Project Cost by Procurement Arrangement (US$ Million)

Procurement Method International N ationallLocal Other Bidding Competitive Competitive Method Bidding Bidding (Other) (lCB) (N/LCB) 266.12 3.78 65.02 (263.73) (3.21) (0.00)

40.00 2.67 0.00 (39.63) (2.27) (0.00) 0.00 0.00 11.97 (0.00) (0.00) (10.2) 35.99 0.00 0.00 (34.63) (0.00) (0.00) 0.00 0.00 4.45 (0.00) (0.00) (4.45)

342.11 6.45 81.44 (337.99) (5.48) (14.65)

Total

334.92 (266.94»

42.67 (41.90) 11.97 (10.2) 35.99 (34.63) 4.45 (4.45)

430.00 (358.12)

.. Foot notes: N/LCR - natIOnal/local competitive blddmg for small works, and local services. Others comprise contracts financed by EIB and CEC, local sole-sourced services, such as procurement services from BCECO, UGP services, cost of establishing letters of credit.

6. All consulting services are to be provided by firms to be selected on Quality and Cost-Based Selection (QCBS) method.

Thresholds for Procurement Methods and Prior Review

7. Table 2 below provides the prior r~view thresholds. Procurement of IDA financed supply .and installation of plant and equipment estimated to cost US$3,000,000 equivalent or more per contract and Goods contract estimated to cost US$ 500,000 equivalent or more per contract as well as consulting contracts of US$200,000 equivalent or more per contract for hiring firm; and US$100,000 equivalent for contract or more for hiring individual consultants will be subject to prior review by IDA. The first two NCB contracts for procurement of works and Goods

103

respectively will also be subject to IDA prior review. All single-source selection of consultants and terms of reference for consulting services, irrespective of contract value, will be subject to IDA prior review. All other contracts will be subject to post review which will be conducted by IDA during supervision missions and/or by an independent procurement auditor.

Table 2 - Thresholds for Procurement Methods and Prior Review Expenditure Category Contract Value Procurement Contracts Subject to

Threshold (US$) Method Prior Review (US$)

Works, Supply and ~ $3,000,000 ICB All contracts Installation < $3,000,000, NCB First two contracts

~$500,000 Shopping, All subject to post Minor civil works < $50,000 reVIew

Goods ~ $500,000 ICB All contracts < $500,000, ~$50,000 NCB First two contracts < $50,000 Shopping All subject to post-

reVIew

Services: Firms ~ $100,000 QCBS/LCS All contracts ~

< $100,000 CQS $200,000 Individuals IC

, All post review All contracts ~ $100,000

, , , , Footnotes: ICB- InternatIOnal Competitive Blddmg; NCB- NatIOnal Competitive Blddmg; QCBS- Quallty- and Cost Based Selection; CQ- Selection based on Consultants' Qualifications; IC - individual consultant; LCS - Least- Cost Selection

104

MAPS

Map 1: DRC - Southern African Power Pool (Map 35356)

Map 2: DRC - Southern African Power Market Project (Map 35198)

Map 3: DRC - Southern African Power Market Project; Sub Saharan Regional Optical Fiber Telecommunication Backbone Networks with World Bank Support (Map 3700 1)

Map 4: DRC - Southern African Power Market Project; Central Africa Optical Fiber Telecommunications Backbone Configurations (Map 37002)

105

CAPE VERDECAPE VERDE MAURITANIAMAURITANIA

FORMERFORMERSPANISH SPANISH

SAHARA SAHARA

ALGERIAALGERIA

MOROCCOMOROCCO

LIBYALIBYA ARAB REP.ARAB REP.OF EGYPTOF EGYPT

MALIMALI

GUINEAGUINEA

SENEGALSENEGAL

GHANAGHANA

BENINBENIN

TOGOTOGO

NIGERNIGERCHADCHAD

SUDANSUDANETHIOPIAETHIOPIA

ERITREAERITREA

DJIBOUTIDJIBOUTI

NIGERIANIGERIA

BURKINABURKINAFASOFASO

CENTRALCENTRALAFRICAN REPUBLICAFRICAN REPUBLIC

CÔTEÔTED’IVOIRED’IVOIRE

GUINEA-BISSAUGUINEA-BISSAU

SIERRA LEONESIERRA LEONE

EQUATORIAL GUINEAEQUATORIAL GUINEASÃO TOMÉ AND PRÍNCIPEÃO TOMÉ AND PRÍNCIPE

LIBERIALIBERIA

THE GAMBIATHE GAMBIA

SOMALIASOMALIA

TUNISIATUNISIA

KENYAKENYAUGANDAUGANDA

BURUNDIBURUNDI

TANZANIATANZANIA

DEM. REP.DEM. REP.OFOF

CONGOCONGO

CONGOCONGOGABONGABON

CAMEROONCAMEROON

RWANDARWANDA

ANGOLAANGOLA

NAMIBIANAMIBIA BOTSWANABOTSWANA

SOUTHSOUTHAFRICAAFRICA

ZAMBIAZAMBIA

ZIMBABWEZIMBABWE

MALAWIMALAWI

MOZAMBIQUEMOZAMBIQUE

SWAZILANDSWAZILANDLESOTHOLESOTHO

MADAGASCARMADAGASCAR

COMOROSCOMOROS

MAURITIUSMAURITIUS

SEYCHELLESSEYCHELLES

CAPE VERDE MAURITANIA

FORMERSPANISH

SAHARA

ALGERIA

MOROCCO

LIBYA ARAB REP.OF EGYPT

MALI

GUINEA

SENEGAL

GHANA

BENIN

TOGO

NIGERCHAD

SUDANETHIOPIA

ERITREA

DJIBOUTI

NIGERIA

BURKINAFASO

CENTRALAFRICAN REPUBLIC

CÔTED’IVOIRE

GUINEA-BISSAU

SIERRA LEONE

EQUATORIAL GUINEASÃO TOMÉ AND PRÍNCIPE

LIBERIA

THE GAMBIA

SOMALIA

TUNISIA

KENYAUGANDA

BURUNDI

TANZANIA

DEM. REP.OF

CONGO

CONGOGABON

CAMEROON

RWANDA

ANGOLA

NAMIBIA BOTSWANA

SOUTHAFRICA

ZAMBIA

ZIMBABWE

MALAWI

MOZAMBIQUE

SWAZILANDLESOTHO

MADAGASCAR

COMOROS

MAURITIUS

SEYCHELLES

A t l a n t i cO c e a n

IndianOcean

Th is map was produced by the Map Des ign Uni t o f The Wor ld Bank.The boundar ies , co lo rs , denominat ions and any other in format ion shown onth is map do not imply, on the par t o f The Wor ld Bank Group, any judgmenton the lega l s ta tus of any te r r i to r y, o r any endorsement or acceptance ofsuch boundar ies .

IBRD 37001

JUNE 2009

DEMOCRATIC REPUBLIC OF CONGO

SOUTHERN AFRICAN POWER MARKET PROJECTSUB-SAHARAN REGIONAL OPTICAL FIBER TELECOMMUNICATION

BACKBONE NETWORKS WITH WORLD BANK SUPPORTCENTRAL AFRICAN BACKBONE

CAB/RCIP BACKBONE

RCIP COUNTRIES

EASSy CABLE

SOUTHERN AFRICA POWER MARKETTRANSMISSION LINES

MarouaMaroua

BiraoBirao

NkongsambaNkongsambaKumbaKumba

DoualaDouala

MinnaMinna

NgaoundNgaoundérééré

BafoussamBafoussamFoumbanFoumban

BamendaBamenda

GarouaGaroua

BossembeleBossembele

BossangoaBossangoa

BouarBouar

NdeleNdele

MakokouMakokou

MbalmayoMbalmayoEdeaEdea

MpandaMpanda

MobaMoba

KalemieKalemie

FiziFizi

ShabundaShabundaUviraUvira

KigomaKigomaUjijiUjiji

LubutuLubutuUbunduUbundu

KinduKindu

KalimaKalima

PuniaPunia WalikaleWalikale MasisiMasisiSakeSake

RutshuruRutshuru

GomaGoma

MbararaMbarara

KaseseKaseseBeniBeni

KanangaKanangaMbuji-MayiMbuji-Mayi KabindaKabinda KabaloKabalo

ManonoManono

KasengaKasenga

LikasiLikasiKolweziKolwezi

LubumbashiLubumbashi

ChingolaChingolaKitweKitwe NdolaNdola

KasamaKasama

LodjaLodja

IleboIlebo

LuenaLuena

KasomenoKasomeno

KaminaKamina

KabongoKabongo

KongoloKongolo

SaurimoSaurimo

NolaNola

BerberatiBerberati

BozoumBozoum

KagaKagaBandoroBandoro

MobayeMobayeBangassouBangassou

BambariBambari

JubaJuba

WawWaw

NakuruNakuruKisumuKisumu

EldoretEldoret

MeruMeru

MombasaMombasa

MwanzaMwanza

ZanzibarZanzibar

MbeyaMbeya

TangaTangaTaboraTabora

LobitoLobito

MalanjeMalanje

HuamboHuambo

Port-Port-GentilGentil

OuessoOuesso

FrancevilleFrancevilleMoandaMoanda

LambarLambarénééné

Pointe-NoirePointe-Noire

MossendjoMossendjo

LoubomoLoubomoNkayiNkayi

BataBata

MufuliraMufuliraChililabombweChililabombwe

LuanshyaLuanshya

MzuzuMzuzu

BukavuBukavu

MatadiMatadi

BandunduBandundu

MbandakaMbandaka

CalabarCalabarAbaAba

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KadunaKaduna

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ZariaZaria

LafiaLafia

DeseDese

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BauchiBauchi GombeGombe

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GarissaGarissa

WajirWajir

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KerichoKericho

KitaleKitale

NanyukiNanyuki

NyeriNyeri

ThikaThika

MachakosMachakos

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SorotiSoroti

LiraLira

MbaleMbale

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EntebbeEntebbe

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MkoaniMkoani

ArushaArusha MoshiMoshi

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LichingaLichinga

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ChipataChipata

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AmbrizAmbriz

Porto AmboimPorto Amboim

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ImpfondoImpfondo

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DjambalaDjambala

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TchibangaTchibanga

MayumbaMayumba

KangoKango

SibutSibut

GemenaGemena

GbadoliteGbadoliteBondoBondo

LisalaLisala BumbaBumba

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AbaAba

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BRAZZAVILLEBRAZZAVILLE

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Nile

Victoria

Nile

Benue

Kwango

RioCuango

Kasaï

Tshuapa

10º 20º 25º 30º 35º 40º

10º

5º

0º

5º

10º

35º 40º30º25º20º15º

10º

10º

5º

0º

5º

15º

10º

0 100 200 300 Kilometers

0 100 200 300 Miles

Th is map was produced by the Map Des ign Uni t o f The Wor ld Bank. The boundar ies , co lo rs , denominat ions and any other in format ionshown on th is map do not imply, on the par t o f The Wor ld BankGroup, any judgment on the lega l s ta tus of any te r r i to r y, o r anyendorsement or acceptance of such boundar ies .

DEMOCRATIC OF CONGO

SOUTHERN AFRICANPOWER MARKET PROJECT

CENTRAL AFRICAOPTICAL FIBER

TELECOMMUNICATIONBACKBONE

CONFIGURATIONS

MAIN CITIES AND TOWNS

NATIONAL CAPITALS

INTERNATIONAL BOUNDARIES

SAT-3/WASC AND WAFS

PIPELINE OPTICAL FIBER

CENTRAL AFRICANBACKBONE (CAB)

RCIP & EASSy

OTHER NETWORKS

EXISTINGUNDER

CONSTRUCTION

IBRD 37002

JUNE 2009

LUBILANJI

TSHELA

LUKULALEMBA

MOANDA

INGA

KINSHASA

ZONGO

SANGA

GBADO-LITEMOBAYI

TSHOPO

MWEKA

DEMBA

MANI

TSHALA

KANIAMA

KILUBI

KIBU

KARAWA

BELIA

AMBWE

KAMPEN

LUILINGU

NYABIONDORUTSHURU

MOKOTOS

RUZUZI I&IIMUNGOMBE

MANGEMBE

KYIMBI

PIANA-MWANGA

MITWAB

DIKOLONGO

KONI

KASENGA

KISANGAMWADINGUSHA

KALULEN’SEKE

N’ZILO

LUTSHURUKURU

Boma Mbanza-Ngungu

Tshikapa

Mwene-Ditu

Aketi

Boende

Buna

BetambaYumbi

Faradje

Kamina

Kikwit

Feshi

Idiofa Kongolo

Kutu

Likasi

Lubudi

Kilwa

Lodja

Lusambo

Watsa

Kenge

Bulungu

Mangai

Lisala

Lubutu

Lowa

KabaloKabinda

Kapanga

Sandoa

Bafwasende

Banalia

Butembo

Moba

Sakania

Dilolo

Pweto

Basankusu

Bongandanga

Akula

Bikoro

Inongo

Gemena

Imese

Zongo

LibengeBusinga

Bondo

ButaTitule

Bumba

Kolwezi

Kasongo

Uvira

Lulimba

Wanie Rakula

Yangambi

Bunia

Beni

Isiro

WambaMongbwalu

Manono

Kalemie

Ilebo

Ikela

Kalima

Kama

Malela

Matadi

Bukavu

Goma

Kindu

Mbandaka

Kananga

Kisangani

Mbuji-Mayi

Bandundu

Lubumbashi

KINSHASA

S U D -K I V U

N O R DK I V U

MANIEMA

B A N D U N D U

K ATA N G A

E Q U AT E U R

O R I E N TA L E

K A S A IO R I E N TA L

KASAI

OCCIDENTALBAS-CONGO

KINSHASA

CONGO

CAMEROON

GABON

CENTRAL AFR ICAN REPUBL IC

TANZAN IA

UGANDA

S U D A N

Z A M B I A

ZAMBIA

A N G O L A

BURUNDI

RWANDA

MAL

AWI

CABINDA(ANGOLA)

Tshuapa

Lomela

Kasai

Kwango

Lualaba

Congo

Luvua

Ulindi

Aruwimi

Kibali

Uele

Ubangi

Oub

angu

i

Lulua

Lualaba

Lopori

Lomami

Lukuga

Congo

Luilaka

Salonga

Sankuru

Lukenie

Kasai Lulua

Lufira

Loma

mi

Lueo

Lualaba

Kwilu

Lulonga

LakeTanganyika

LakeEdward

Lake Kivu

LakeAlbert

LakeMweru

Lake Malawi

A T L A N T I C

O C E A N

Lake

Victoria

To Bangui

To Kembe

To Bangasso

To Juba

To Pakwach

To Kibuye

To Ruhengeri

To Bujumbura

To Kitwe

To Luwingu

To Lucano

To Damba

To Pointe-Noire

5°N

0°

5°S

10°S10°S

30°E25°E

30°E25°E15°E10°E

5°N

0°

5°S

5°E

5°E

10°E 15°E

DEM. REP.OF CONGO

Th is map was produced by the Map Des ign Uni t o f The Wor ld Bank. The boundar ies , co lo rs , denominat ions and any other in format ionshown on th is map do not imply, on the par t o f The Wor ld BankGroup, any judgment on the lega l s ta tus of any te r r i to r y, o r anyendorsement or acceptance of such boundar ies .

0 100 200 300

0 100 200 Miles

400 Kilometers

IBRD 37008

JUNE 2009


SOUTHERN AFRICAN POWER MARKET PROJECT

MAIN CITIES AND TOWNS

PROVINCE CAPITALS

RIVERS

MAIN ROADS

RAILROADS

PROVINCE BOUNDARIES


EXISTING POWER NETWORK:

POWER DISTRIBUTION

HYDRO POWER PLANTS (PUBLIC)

HYDRO POWER PLANTS (PRIVATE)

THERMAL POWER PLANTS

HVDC TRANSMISSION LINE (INGA-SHABA)

220kV TRANSMISSION LINES

110-132kV TRANSMISSION LINES

30-50-70kV TRANSMISSION LINES

PROJECT WORKS:

INGA-KINSHASA PROJECT TRANSMISSION LINE

INGA HYDRO POWER PLANT REHABILITATION

KINSHASA DISTRIBUTION REHABILITATION AND EXPANSION

LüderitzLüderitz

Walvis BayWalvis Bay

ArushaArusha

IringaIringa

DodomaDodomaSingidaSingida

TaboreTabore

KitweKitwe

KimberleyKimberley

East LondonEast London

BloemfonteinBloemfontein

LikasiLikasi

Owen FallsOwen Falls

MwanzaMwanza

MusomaMusoma

KasamaKasama

LichingaLichingaCuambaCuamba

NacalaNacala

PembaPemba

NampulaNampulaAlto MolocueAlto Molocue

BeiraBeira

CaiaCaia

BulawayoBulawayo

InhambaneInhambane

Temane Gas FieldsTemane Gas FieldsPande Gas FieldsPande Gas Fields

Xai-XaiXai-Xai

Louis TrichardtLouis TrichardtSeruleSerule

DurbanDurban

Richards BayRichards Bay

Port ElizabethPort ElizabethMosselbaaiMosselbaai

JohannesburgJohannesburg MBABANEMBABANE

GABORONEGABORONE

WINDHOEKWINDHOEK

MASERUMASERU

KIGALIKIGALI

KAMPALAKAMPALA

BUJUMBURABUJUMBURA

LILONGWELILONGWE

DAR ESDAR ESSALAAMSALAAM

HARAREHARARE

PRETORIAPRETORIA

KINSHASAKINSHASA

LUANDALUANDA

LUSAKALUSAKA

CAPE TOWNCAPE TOWN

MAPUTOMAPUTO

NAIROBINAIROBI

PhombeyaPhombeyaMatamboMatambo

KaraviaKaravia

LuanoLuano

Nzelo &Nzelo &NsekeNseke

MwadingushaMwadingusha& Koni& Koni

SolweziSolwezi

KolweziKolwezi

Kafue LowerKafue Lower

IngaInga

CapandaCapanda

CambambeCambambe

MatalaMatala

LomaumLomaum

RuacanaRuacana

Kudu CCGTKudu CCGT

KokerboomKokerboom

EhuhaEhuha

KoebergKoeberg

AggensisAggensisAriesAries

GriepGriep

DrakensbergDrakensberg

CamdenCamden

Edwaleni IIEdwaleni II

MuellaMuella

Van DerVan DerKloofKloof

PalmietPalmiet

MerapiMerapi

MatimbaMatimba

PhokojePhokoje

MarvelMarvelInsukaminiInsukamini

SpitskopSpitskopApolloApollo

ArnotArnot

FrancistownFrancistown

KomatipoortKomatipoortCorumanaCorumana

MorupuleMorupule

HwangeHwange

BatokaBatoka

KapichiraKapichira

Cahora BassaCahora BassaMepandaMepandaUncuaUncua Nkula A&BNkula A&B

Alto MalemaAlto Malema

Gokwe NGokwe NBinduraBindura

Kariba S&NKariba S&N

VictoriaVictoriaFallsFalls

PensuloPensulo

KidatuKidatu

PanganiPangani

UbungoUbungo

HaleHale

MteraMtera

KihansiKihansiMwakibeteMwakibete

500 kV DC

500 kV DC

220 kV220 kV

220 kV220 kV

220 kV220 kV

220 kV220 kV

220 kV220 kV

330 kV330 kV

400 kV400 kV

400 kV400 kV

400 kV400 kV

400 kV400 kV

275 kV275 kV

220 kV220 kV

330 kV330 kV

330 kV330 kV

330

kV33

0 kV

330

kV33

0 kV

330 kV330 kV

220

kV22

0 kV

220 kV220 kV

132 kV132 kV

132 kV132 kV

132 kV Cable132 kV Cableto Zanzibarto Zanzibar

110 kV110 kV

220 kV220 kV

220 kV220 kV

400

kV40

0 kV

132 kV132 kV

220

kV22

0 kV

110 kV110 kV

HVDC

or H

VAC

HVDC

or H

VAC

Tran

smiss

ion

Syste

m

Tran

smiss

ion

Syste

m

533

kV D

C

533

kV D

C

U G A N D AU G A N D A

S U D A NS U D A N E T H I O P I AE T H I O P I A

G A B O NG A B O N C O N G OC O N G O

EQ.EQ.GUINEAGUINEA

D E M . R E P.D E M . R E P.O F C O N G OO F C O N G O

A N G O L AA N G O L A

N A M I B I AN A M I B I A

Z A M B I AZ A M B I A

MALAWIMALAWI

B O T S W A N AB O T S W A N A

S O U T HS O U T HA F R I C AA F R I C A LESOTHOLESOTHO

SWAZILANDSWAZILAND

Z IMBABWEZ IMBABWE

CAMEROONCAMEROON

T A N Z A N I AT A N Z A N I A

BURUNDIBURUNDI

RWANDARWANDA

K E N YAK E N YA

Lüderitz

Walvis Bay

Arusha

Iringa

DodomaSingida

Tabore

Kitwe

Kimberley

East London

Bloemfontein

Likasi

Owen Falls

Mwanza

Musoma

Kasama

LichingaCuamba

Nacala

Pemba

NampulaAlto Molocue

Beira

Caia

Bulawayo

Inhambane

Temane Gas FieldsPande Gas Fields

Xai-Xai

Louis TrichardtSerule

Durban

Richards Bay

Port ElizabethMosselbaai

Johannesburg MBABANE

GABORONE

WINDHOEK

MASERU

KIGALI

KAMPALA

BUJUMBURA

LILONGWE

DAR ESSALAAM

HARARE

PRETORIA

KINSHASA

LUANDA

LUSAKA

CAPE TOWN

MAPUTO

NAIROBI

PhombeyaMatambo

Karavia

Luano

Nzelo &Nseke

Mwadingusha& Koni

Solwezi

Kolwezi

Kafue Lower

Inga

Capanda

Cambambe

Matala

Lomaum

Ruacana

Kudu CCGT

Kokerboom

Ehuha

Koeberg

AggensisAries

Griep

Drakensberg

Camden

Edwaleni II

Muella

Van DerKloof

Palmiet

Merapi

Matimba

Phokoje

MarvelInsukamini

SpitskopApollo

Arnot

Francistown

KomatipoortCorumana

Morupule

Hwange

Batoka

Kapichira

Cahora BassaMepandaUncua Nkula A&B

Alto Malema

Gokwe NBindura

Kariba S&N

VictoriaFalls

Pensulo

Kidatu

Pangani

Ubungo

Hale

Mtera

KihansiMwakibete

500 kV DC

220 kV

220 kV

220 kV220 kV

220 kV

330 kV

400 kV400 kV

400 kV

400 kV

275 kV

220 kV

330 kV

330 kV

330

kV

330

kV

330 kV

220

kV

220 kV

132 kV

132 kV

132 kV Cableto Zanzibar

110 kV

220 kV

220 kV

400

kV

132 kV

220

kV

110 kV

HVDC

or H

VAC

Tran

smiss

ion

Syste

m

533

kV D

C

T

TS

S

S

S

S

S

S

S

S

S

S

S

S

S

SS

S

S

S

S

S

S

SS

S

S

SS

S

S

S

S

S

S

S

S

S

T T

T TT

T

T

T

T

U G A N D A

S U D A N E T H I O P I A

G A B O N C O N G O

EQ.GUINEA

D E M . R E P.O F C O N G O

A N G O L A

N A M I B I A

Z A M B I A

MALAWI

B O T S W A N A

S O U T HA F R I C A LESOTHO

SWAZILAND

Z IMBABWE

CAMEROON

T A N Z A N I A

BURUNDI

RWANDA

K E N YA

LakeTurkana

Lake AlbertCongo

Kasai

Lake

Victoria

Lake Tanganyika

Lake

Malawi

LakeKariba

Zambezi

LakeMweru

Ubangi

Orange

Limpopo

Orange

AT L A N T I C

O C E A N

I N D I A N

O C E A N

Con

go

20°

10°

0°

30°

20°

10°

0°

20° 30°

30° 40°

This map was produced by the Map Design Unit of The World Bank. The boundar ies, co lors , denominat ions and any other information shown on this map do not imply, on the part of The World Bank Group, any judgment on the legal status of any territory, or any endorsement or acceptance of such boundaries.

IBRD 37009

JUNE 2009

MAIN CITIES



SOUTHERN AFRICANPOWER MARKET PROJECT

SOUTHERN AFRICANPOWER POOL

POWER LINES

REHABILITATED POWER LINES

SUBSTATIONS

HYDRO POWER PLANTS

THERMAL POWER PLANTS

NUCLEAR POWER PLANTS

COORDINATION CENTER

S

TT

S

EXISTINGPOSSIBLEFUTURE PROGRAM

0

0 100 200 300 Miles

100 200 300 400 Kilometers

for official use only report no: 48705-zr - world bank · 2009. 6. 5. · document of the world...

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